UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                    FORM 10-K

                                  ANNUAL REPORT

                     Pursuant to Section 13 or 15(d) of the
                         Securities Exchange Act of 1934

For the fiscal year ended December 31, 2001      Commission File Number 0-12050


                       SAFEGUARD HEALTH ENTERPRISES, INC.
             (Exact name of registrant as specified in its charter)

                DELAWARE                              52-1528581
     (State or other jurisdiction of     (I.R.S. Employer Identification Number)
   incorporation  or  organization)

                            95 ENTERPRISE, SUITE 100
                       ALISO VIEJO, CALIFORNIA 92656-2605
              (Address of principal executive offices)  (Zip Code)

                                  949.425.4300
              (Registrant's telephone number, including area code)

                                  949.425.4586
            (Registrant's fax telephone number, including area code)

           Securities registered pursuant to Section 12(b) of the Act:
                                      NONE

           Securities registered pursuant to Section 12(g) of the Act:
                          COMMON STOCK, $0.01 PAR VALUE

                                      NONE
                       (Name of exchange on which listed)

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the  preceding  12  months  (or  for such shorter period that the registrant was
required  to  file  such  reports),  and  (2)  has  been  subject to such filing
requirements  for  the  past  90  days.

                                YES [X]  NO [ ]

Indicate  by  check mark if disclosure of delinquent filers pursuant to Item 405
of  Regulation  S-K  is  not contained herein, and will not be contained, to the
best  of  registrant's  knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form  10-K.  [X]

The  aggregate  market  value  of the voting stock held by non-affiliates of the
registrant  as  of  March  15, 2002, was $5,052,000. The number of shares of the
registrant's  common  stock outstanding as of March 15, 2002, was 4,820,832 (not
including  3,266,755  shares  held  in  treasury).


<PAGE>
<TABLE>
<CAPTION>
                                    SAFEGUARD HEALTH ENTERPRISES, INC.
                                            INDEX TO FORM 10-K

                                                                                                     PAGE
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<S>                                                                                                  <C>
PART I:

  Item 1.     Business. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .    1

  Item 2.     Properties. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .   16

  Item 3.     Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .   16

  Item 4.     Submission of Matters to a Vote of Security Holders . . . . . . . . . . . . . . . . .   17

PART II:

  Item 5.     Market for Registrant's Common Equity and Related Stockholder Matters . . . . . . . .   17

  Item 6.     Selected Financial Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .   18

  Item 7.     Management's Discussion and Analysis of Financial Condition and Results of Operations   19

  Item 7A.    Quantitative and Qualitative Disclosures About Market Risk. . . . . . . . . . . . . .   26

  Item 8.     Financial Statements and Supplementary Data . . . . . . . . . . . . . . . . . . . . .   27

  Item 9.     Changes in and Disagreements with Independent Accountants on Accounting and
              Financial Disclosure. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .   27

PART III:

  Item 10.    Directors and Executive Officers of the Registrant. . . . . . . . . . . . . . . . . .   27

  Item 11.    Executive Compensation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .   29

  Item 12.    Security Ownership of Certain Beneficial Owners and Management. . . . . . . . . . . .   30

  Item 13.    Certain Relationships and Related Transactions. . . . . . . . . . . . . . . . . . . .   32

PART IV:

  Item 14.    Exhibits, Financial Statement Schedules, and Reports on Form 8-K. . . . . . . . . . .   33

SIGNATURES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .   34
</TABLE>


                                       (i)
<PAGE>
                                     PART I

ITEM  1.  BUSINESS
------------------

In  addition  to  historical  information,  the  description  of  business below
includes  certain  forward-looking  statements  regarding  SafeGuard  Health
Enterprises,  Inc.  and  its  subsidiaries (the "Company"), including statements
about  growth  plans,  business  strategies,  future  operating  results, future
financial  position,  and  general  economic  and  market events and trends. The
Company's  actual  future  operating  results  could  differ materially from the
results  indicated  in  the  forward-looking  statements  as a result of various
events that cannot be predicted by the Company. Those possible events include an
increase  in  competition,  changes  in  health care regulations, an increase in
dental  care  utilization  rates,  new  technologies, an increase in the cost of
dental  care, the inability to contract with an adequate number of participating
providers,  the  inability  to  efficiently integrate the operations of acquired
businesses,  the  inability  to realize the carrying value of the escrow account
containing  a  portion of the proceeds from the re-sale of the assets of certain
dental and orthodontic practices, the inability to realize the carrying value of
certain  long-term promissory notes owed to the Company, natural disasters, loss
of  key  management,  and other risks and uncertainties as described below under
"RISK  FACTORS."  The  following  should  be  read  in  conjunction  with  the
Consolidated  Financial  Statements  of  the  Company  and  Notes  thereto.

(a)  GENERAL  DEVELOPMENT  OF  BUSINESS

The  Company  provides  a wide range of dental benefit plans, including HMO plan
designs  and preferred provider organization ("PPO")/indemnity plan designs. The
Company  also  provides  vision  benefit  plans,  administrative  services,  and
preferred  provider  organization  services.  The  Company conducts its business
through  several  subsidiaries,  one  of  which  is an insurance company that is
licensed  in  a number of states, and several of which are dental HMO plans that
are  each  licensed  in the state in which it operates. The Company's operations
are primarily in California, Texas and Florida, but it also operates in a number
of  other  states.

The  Company's  predecessor,  SafeGuard  Health  Plans,  Inc.,  a  California
corporation, (the "California Plan") commenced operations in 1974 as a nonprofit
corporation. The California Plan converted to for-profit status in December 1982
and is currently a subsidiary of the Company. SafeGuard Health Enterprises, Inc.
(the  "Parent") was incorporated in California in November 1982 and acquired the
California  Plan  in  December 1982. In August 1987 the Parent reincorporated in
Delaware. Unless the context requires otherwise, all references to the "Company"
or  "SafeGuard"  mean  SafeGuard  Health Enterprises, Inc. and its subsidiaries.

The  Company  completed  four acquisitions during the last ten (10) years, which
account  for  a  significant  portion  of  the  Company's current operations. In
September  1992,  the  Company  acquired a California life insurance company and
used  this  entity  to  begin  offering PPO/indemnity dental plan designs to its
customers.  In August 1996, the Company acquired a dental HMO company located in
Texas,  which had approximately $12 million of annual revenue at the time of the
acquisition.  In  May 1997, the Company acquired a dental HMO company located in
Florida, which had approximately $7 million of annual revenue at the time of the
acquisition.  In  August  1997, the Company acquired another indemnity insurance
company,  which had no active business but was licensed in a number of states in
which the Company was not previously licensed. The Company is currently licensed
as  a  dental  HMO  in  nine states, and as an indemnity insurance company in 20
states.  However,  substantially  all of its revenue is generated in California,
Florida  and  Texas.

The  Company sold all of its general dental practices in 1996 and 1997, and sold
all  of  its  orthodontic  practices  in  1998.  Certain  of  the general dental
practices  and  all of the orthodontic practices were sold to a single purchaser
(the  "Purchaser"), in exchange for $23.0 million of long-term promissory notes.
Due  to uncertainty about the Purchaser's ability to meet its commitments to the
Company  under  the promissory notes, the Company did not treat the transactions
with  the  Purchaser  as sales for accounting purposes, notwithstanding the fact
that  these  transactions  were  legally  structured  as  sales.  The  Purchaser
ultimately defaulted on its obligations to the Company, and in October 2000, the
Company  completed  a  transaction  in  which the general dental and orthodontic
practices  sold  to  the Purchaser were re-sold to another third party (the "New
Purchaser").  All of the revenues and expenses related to the general dental and
orthodontic  practices  are reflected in the accompanying consolidated financial
statements under "discontinued operations" in all applicable periods. See Note 2
to the accompanying consolidated financial statements for more information about
these  transactions,  including  the  accounting  treatment  applied  to  the
transactions  with  the  Purchaser.


                                        1
<PAGE>
The  Company's  executive offices are located at 95 Enterprise, Suite 100, Aliso
Viejo,  California  92656-2605. Its telephone number is 949.425.4300 and its fax
number  is  949.425.4586.

DENTAL  CARE  MARKETPLACE

The total market for dental care services and for dental benefit plans has grown
rapidly  in recent years. The United States Health Care Financing Administration
("HCFA")  reported  that total expenditures for dental care in the United States
increased from approximately $44.5 billion in 1995 to an estimated $60.0 billion
in  2000.  The  National Association of Dental Plans (the "NADP") estimated that
the  number  of  people  in the United States that were enrolled in some type of
dental  benefit  plan increased from 113 million in 1995 to 159 million in 2000.

The  cost of dental services has increased in recent years at a rate higher than
that for consumer goods as a whole. The United States Bureau of Labor Statistics
(the  "BLS)  reported  that the consumer price index ("CPI") for dental services
for  all urban consumers increased by 25.0% from 1995 to 2000, while the CPI for
all  items  for  all  urban consumers increased by 13.0% during the same period.
HCFA  reported that expenditures for dental services accounted for approximately
4.6%  of  total  national  health  care expenditures during 2000. As a result of
increases  in  the  cost of dental services, the Company believes that employers
and  other  purchasers  of  dental  care benefits have a significant interest in
effectively  managing  the  cost  of  dental  care  benefits.

As  noted  above,  the  NADP estimated that approximately 159 million people, or
approximately 57% of the total population of the United States, were enrolled in
some  type  of  dental  benefit  plan  in  2000. The United States Census Bureau
estimated  that  approximately  238  million people, or approximately 86% of the
total  population  of  the  United  States, were covered by some type of medical
benefit  plan  in 2000. The Company believes the number of people without dental
coverage  represents  an  opportunity  for dental benefits companies to increase
their  enrollments.

The  NADP  estimated  that  enrollment  in  dental  HMO  plans  increased  from
approximately  19.8  million people in 1995 to approximately 26.6 million people
in  2000.  However,  the  NADP  also  estimated  that  enrollment in dental HMOs
decreased  slightly  during  the  latter  part of that period, from 27.2 million
people  in 1997 to 26.6 million people in 2000. The Company believes the primary
reason that total enrollment in dental HMOs has not increased in recent years is
that  most purchasers desire greater flexibility in the choice of providers than
is  generally  afforded  by  dental  HMOs,  and  the size of dental HMO provider
networks  has  not  kept  pace  with  the  growth in the dental benefits market.

The  dental  HMO  business  is  characterized by participation of several large,
national  insurance  companies  and numerous independent organizations. The NADP
estimated  that  there  were approximately 90 firms offering dental HMO plans in
the  United  States  in  2000.

In  recent  years,  there  has  been a significant increase in the enrollment in
dental  insurance  plans  that  include  PPO  networks,  which typically provide
greater flexibility in the member's choice of providers than a dental HMO. Under
these  plans, the insurance company creates a PPO network by negotiating reduced
fees  with  dentists  in  exchange  for  including  the dentists in a "preferred
provider"  panel  that is distributed to subscribers who are enrolled in the PPO
dental plan. The subscribers who are enrolled in the plan receive a higher level
of  benefits,  in  the  form  of  reduced  out-of-pocket  expense at the time of
service,  if  they choose to receive services from a dentist in the PPO network.
The  NADP  estimated that enrollment in fully insured PPO dental plans has grown
from  approximately  8.8  million  people  in 1995 to approximately 25.2 million
people  in  2000.  The  Company believes that PPO dental plans have been rapidly
gaining  in  popularity  because  they  provide  customers  with  a  balance  of
cost-effectiveness  and  flexibility  in  the  choice  of  providers.

The average monthly cost of dental insurance coverage is much lower than medical
insurance  coverage. Dental care is provided almost exclusively on an outpatient
basis,  and  general  dentists,  as  opposed to specialists, perform most dental
procedures.  Most  dental problems are not life threatening and do not represent
serious  impairments  to  overall health. Therefore, there is a higher degree of
discretion exercised by patients in determining when or whether to obtain dental
services,  and  a  higher  degree of sensitivity to the cost of dental services.
Many dental conditions have a range of appropriate courses of treatment, each of
which  has  a  different  out-of-pocket  cost  for patients who are covered by a


                                        2
<PAGE>
dental  insurance plan. For example, a deteriorated filling may be replaced with
another  filling (a low-cost alternative), a pin-retained crown build-up (a more
costly  alternative), or a crown with associated periodontal treatment (the most
costly alternative). The design of a patient's dental insurance plan can have an
impact  on the type of dental services selected by the patient or recommended by
the  dentist.  Dental  benefit  plans  generally  do  not  include  coverage for
hospitalization,  which  is  typically  the  most expensive component of medical
services.  In  addition,  co-payments and co-insurance payments made by patients
under  dental  plans  typically  represent  a  larger share of the total cost of
dental  care,  compared  to  the share of the total cost of medical care that is
paid  by  patients  under  medical  coverage  plans.

Common  features of dental PPO and indemnity plans include annual deductibles of
varying  amounts,  maximum  annual  benefits  of  $2,000  or less per person and
significant  patient  cost-sharing. Patient cost-sharing typically varies by the
type  of dental procedure, ranging from little or no cost-sharing for preventive
procedures  to  50%  or  more  cost-sharing for bridgework or dentures, and even
greater  cost-sharing  for  orthodontic  care.  The  relatively  high  patient
cost-sharing  and  the  relatively  predictable  nature  of  the need for dental
services substantially reduces the underwriting risk of dental PPO and indemnity
plans,  compared  to  the  underwriting  risk of a medical insurance plan, which
typically  covers  catastrophic  illnesses  and  injuries.

Under  a dental PPO or indemnity plan, dentists have little incentive to deliver
cost-effective  treatments  because  they  are  compensated on a unit-of-service
basis.  In  contrast, under a dental HMO plan, each general dentist is typically
reimbursed  primarily in the form of a fixed monthly payment for each member who
selects  that dentist as his or her primary dental care provider (a "capitation"
payment). In some cases, the general dentist also receives supplemental payments
from  the  dental  HMO  for  performing  certain  procedures, in addition to the
capitation  payments.  Under  a  dental  HMO  plan,  each dentist also typically
receives  co-payments  from the patient for certain dental services, in addition
to the capitation and supplemental payments from the dental HMO. The co-payments
and  supplemental payments mitigate the level of utilization risk assumed by the
dentist,  but  are  typically  small  enough  to  discourage  the  dentist  from
delivering treatments that are not cost-effective. Capitation payments create an
incentive  for  dentists to emphasize preventive care, to deliver cost-effective
treatments,  and  to  develop  a  long-term  relationship  with  their patients.
Capitation payments also substantially reduce the dental HMO plan's underwriting
risk  associated  with  varying  utilization  of  dental  services.

(b)  FINANCIAL  INFORMATION  ABOUT  SEGMENTS

The  Company  has  only  one  reportable business segment, which provides dental
benefit  plans  to  employers,  individuals  and  other  purchasers.

(c)  NARRATIVE  DESCRIPTION  OF  BUSINESS

GENERAL  DESCRIPTION  OF  THE  COMPANY

The  Company  provides  dental  benefit  plans,  vision  benefit plans and other
related  products, to government and private sector employers, associations, and
individuals.  The Company currently has group contracts with over 3,000 employer
or  association  groups  and delivers dental or vision services to approximately
625,000  covered individuals. Dental care is provided to the covered individuals
through  its  HMO  network  of  approximately  4,400 dentists, and through a PPO
network  of  approximately  10,200  dentists.

Under  the  Company's  dental  benefit  plans  that have an HMO plan design, its
customers  pay a monthly premium for each subscriber enrolled in the plan, which
is  fixed  for  a  period of one to two years. The amount of the monthly premium
varies  depending  on  the  dental  services  covered,  the amount of the member
co-payments  that  are  required  for  certain types of dental services, and the
number  of dependents enrolled by each subscriber. Each subscriber and dependent
is required to select a general dentist from the Company's HMO provider network,
and  to  receive  all general dental services from that dentist. A referral to a
specialist  must  be requested by the general dentist and approved in advance by
the  Company.  The  approval  by the Company confirms that the referral is for a
service  covered  by  the  member's  benefit  plan.  Under  HMO  plan  designs,
subscribers  and  dependents  are  not required to pay deductibles or file claim
forms,  and  are  not  subject  to  a  maximum  annual  benefit.

Under  the Company's dental benefit plans that have a PPO/indemnity plan design,
its  customers  also  pay  a monthly premium for each subscriber enrolled in the
plan, which is fixed for a period of one year. The amount of the monthly premium
varies  depending  on  the  dental  services  covered,  the amount of the annual
deductible,  the  portion  of  the  cost  of dental services that is paid by the
subscriber  or  dependent,  the  maximum  annual  benefit amount, the geographic
location of the group, and the number of dependents enrolled by each subscriber.


                                        3
<PAGE>
Under  PPO/indemnity  plan  designs, subscribers are required to pay deductibles
and  co-payments that are typically higher than the co-payments required under a
dental  HMO  plan,  and  the benefits covered are typically subject to an annual
maximum  amount.  However,  under  PPO/indemnity  plan  designs, subscribers and
dependents  can  choose  to  receive  dental  services from any dentist of their
choice.  If  the  subscriber  or  dependent  chooses  to receive services from a
dentist  in  the  PPO network, the services will typically cost less than if the
services  were  delivered  by  a  dentist  not contracted with the Company's PPO
network.

The  Company's  goal  is to be a leading dental benefits provider in its primary
markets  of  California,  Florida and Texas, but it also provides dental benefit
plans  in  a number of other states. The Company offers a comprehensive range of
dental  benefit  plans  that is based on a set of standard plan designs that are
available  in  each  of the markets in which the Company operates. Additionally,
for large clients, the Company has the information technology and flexibility to
deliver  highly  customized  benefit  plans.

Under  the  Company's  vision benefit plans, customers pay a monthly premium for
each  subscriber enrolled in the plan, which is fixed for a period of one to two
years.  The monthly premium varies depending on the vision services covered, the
member  co-payments  required  for  certain  vision  services, and the number of
dependents  enrolled  by  each  subscriber.  Under  the  Company's vision plans,
subscribers  and  dependents  can  choose  to  receive  vision services from any
licensed  provider  of  their  choice. If the subscriber or dependent chooses to
receive  services  from  a  provider  in the PPO network, the amount paid by the
subscriber  or  dependent at the time of service is typically less than it would
be  if  the  services  were  delivered  by a provider outside of the PPO network

The  Company uses multiple distribution channels to sell its products. The large
employer market is targeted by developing relationships with benefits consulting
firms  that are often engaged by large employers to assist them in selecting the
best  dental  plans.  The  Company  utilizes  its  senior  management,  outside
consultants, and its internal sales force to develop relationships with benefits
consulting  firms and with potential large customers. The Company primarily uses
its  internal  sales  force  to sell the Company's products to mid-size employer
groups,  by  developing  relationships with independent brokers, and to a lesser
extent,  by  contacting  potential  customers  directly.  The  Company  recently
established  a  telephonic small group sales and service function in each of its
three  primary  markets,  which focuses on developing the small group market and
providing  quality  service to existing customers in a cost-effective manner. In
addition,  the  Company has recently developed new products and new distribution
channels  for  the  individual  dental  benefit  plan  market, which the Company
believes  has  growth  potential. The Company's dental plans are also offered to
medical  HMOs, which include the Company's dental plans in comprehensive medical
plans offered by those medical HMOs. In some cases, the Company utilizes general
agency  relationships,  which  generally target small employers and individuals.

The Company is committed to providing quality dental care to its members through
a network of qualified, accessible dentists. By providing a wide range of dental
benefit  plan designs, including HMO and PPO/indemnity plan designs, the Company
is able to maintain a competitive network of providers by delivering patients to
dentists  under  both  types of provider reimbursement. In addition, the Company
offers  stand-alone  administrative  services  and  PPO  access  products to its
customers,  which deliver additional patient volume to its contracted providers.
The  Company  has provider relations representatives who maintain the network of
providers  in  each  of  the Company's significant geographic markets. The local
knowledge  and expertise of these representatives enables the Company to develop
and  maintain  competitive  provider  networks,  which is an important factor to
employers  in  selecting  a  dental  benefit  plan.

GEOGRAPHIC  MARKETS

The  Company  operates  primarily  in  California,  Florida  and  Texas  and its
marketing  activities  are  currently focused on these states. It also maintains
dental HMO and dental PPO provider networks in several other states, and obtains
new  business  in  those  other  states  from time to time. The Company uses its
provider networks in other states to serve employees of customers in its primary
markets  who  are  located  outside  of  California,  Florida  and  Texas.

The  Company  started  its  business  in  California,  and expanded to Texas and
Florida primarily through the acquisition of two dental HMO companies located in
those two states. It is possible that the Company could expand its operations to
additional states as a result of future acquisitions or new or expanded customer
contracts,  although  the  Company  has  no  current  plans  to  do  so.


                                        4
<PAGE>
PRODUCTS

The  Company operates primarily in a single business segment, which is providing
dental benefit plans to employers, individuals and other purchasers. The Company
provides  a broad range of dental benefit plan designs, depending on the demands
of  its  customers. In addition to offering a range of benefit plan designs, the
Company  offers  dental  benefit  plans  with  a restricted choice of providers,
through its HMO plans, plans with financial incentives to use network providers,
through  its  PPO  plans,  and  benefit  plans  with  an  unrestricted choice of
providers,  through its indemnity plans. Premium rates for each benefit plan are
adjusted  to  reflect  the  benefit  design, the cost of dental services in each
geographic  area, and whether the covered individuals can select any provider at
the  time  of  service.  In  addition  to dental benefit plans, the Company also
offers  other  related  products,  as  described  below.  The  revenue currently
generated  by  these  other  related products is not significant compared to the
revenue  generated  by  the  Company's  dental  benefit  plans.

Dental  HMO Plan Designs. The Company offers a comprehensive range of dental HMO
plan  designs,  which  typically  cover  basic  dental  procedures,  such  as
examinations,  x-rays,  cleanings  and fillings, for no additional charge at the
time of service, although some benefit designs require the member to pay a small
co-payment  for  each  office  visit. Dental HMO plans also typically cover more
extensive  procedures  provided  by the general dentist, such as root canals and
crowns,  as  well  as  procedures  performed  by specialists contracted with the
Company,  including  oral  surgery, endodontics, periodontics, orthodontics, and
pedodontics,  in  exchange  for  member  co-payments that vary depending on each
member's  benefit  plan  design. Any procedure performed by a specialist must be
requested  by  the  member's  general  dentist  and  approved  in advance by the
Company,  in  order  for  the  procedure to be a covered benefit.  The Company's
dental  HMO  plans also cover emergency out-of-area treatments that are required
when  a  member is temporarily outside the geographic area served by his general
dentist.

Under a dental HMO plan, each subscriber and dependent selects a general dentist
from  the  Company's  HMO  provider  network,  and  receives  all general dental
services from that dentist. The general dentist selected by each member receives
a  monthly  capitation payment from the Company, which is designed to cover most
of  the  total cost of the general dental services delivered to that member. The
monthly capitation payment does not vary with the nature or the extent of dental
services provided to the member by the general dentist, but is variable based on
the  particular  benefit  plan  purchased  by  each  member. In exchange for the
monthly  capitation  payments,  the  general dentist provides dental services to
members of the Company's HMO plans, based on the benefit design of each member's
benefit  plan.  In addition to the capitation payments, the general dentist also
receives  co-payments  from  the  members for certain types of services, and may
receive  supplemental  payments  from the Company for certain types of services.
The  Company  typically  pays  for services delivered by a specialist based on a
negotiated  fee  schedule.

Dental  PPO/Indemnity  Plan Designs. The Company offers a comprehensive range of
dental  PPO/indemnity  plan  designs,  subject  to  regulatory  restrictions.
PPO/indemnity  dental plan designs typically cover the same dental procedures as
dental  HMO plan designs. Under the Company's PPO/indemnity dental plan designs,
the  covered individuals are required to make a co-insurance payment at the time
of each service, which is typically higher than the co-payments required under a
dental  HMO  plan  design. In addition, the benefits covered under the Company's
PPO/indemnity  dental  plan designs are subject to annual deductibles and annual
benefit  maximums,  which  is  not  the case under the Company's dental HMO plan
designs.

Under  PPO/indemnity  dental plan designs, subscribers and dependents can choose
to  receive covered services from any licensed dentist. In the case of a benefit
plan that includes a PPO component, the co-insurance amounts paid by the covered
individual  are  reduced if he or she chooses to receive services from a dentist
in  the  Company's  preferred  provider  network.  In  addition,  the  covered
individual's  annual  deductible  is  typically  waived  if he or she chooses to
receive  all  dental services from a dentist in the Company's preferred provider
network.  The  Company  pays for services delivered by dentists in its preferred
provider  network  based  on  negotiated  fee schedules, which together with any
coinsurance  payment  due  from the patient, constitutes payment in full for the
services  delivered  (i.e.,  there is no "balance billing" by the provider). The
Company  pays  for services delivered by non-contracted providers based on usual
and customary dental fees in each geographic area, and the provider may bill the
patient  for  any difference between his or her standard fee and the amount paid
by the Company. The Company believes that offering an indemnity dental plan with
a  PPO network is an attractive way to enter geographic areas where few dentists


                                        5
<PAGE>
have  agreed to participate in HMO networks. In such areas, participation in the
PPO  network  can  serve  as  a  transitional  step  for  dentists,  between the
traditional  system  of  reimbursement  based  on  usual  and customary fees, to
participation  in  an HMO network. PPO/indemnity dental plan designs subject the
Company  to  more  significant  underwriting risks than dental HMO plan designs,
because  the  Company assumes all the risk related to varying utilization rates.

The Company believes that PPO/indemnity plan designs are attractive to employers
and  other  purchasers  because  they  are  a  cost-effective  alternative  to
traditional  indemnity  insurance,  and  they  offer  more  freedom of choice of
providers  than  dental  HMO  plan  designs.

Defined  Benefit  Dental  Plans.  The Company offers a series of defined benefit
dental  insurance  plans.  Under  these  plans,  subscribers  and dependents are
reimbursed  a  fixed  amount  for  each procedure performed, regardless of which
provider  performs the procedure. One innovative feature of this product is that
certain  plan  designs include coverage for dental implants, which are typically
excluded  from  other  types  of dental benefit plans. This product is also sold
with  or  without  orthodontic  coverage. Defined benefit plans are designed for
customers  who  want  to  avoid  the restrictions of a network-based plan, while
paying  a  monthly  premium  that  is  significantly less than that of a typical
PPO/indemnity plan. Because this product is not dependent on a provider network,
it  can  be marketed to potential customers who are located outside of the areas
covered  by  the  Company's  HMO  and  PPO  provider  networks.

Dual  Option Product. The Company frequently combines one of its dental HMO plan
designs  with  one  of  its PPO/indemnity plan designs to create a "dual option"
product  for  its  groups.  As  a  result, each subscriber can choose whether to
enroll  in  the  dental  HMO  plan  design  or the PPO/indemnity plan design. By
offering  a  dual  option  product,  the  Company can offer its subscribers more
flexibility,  and  can  capture  a  larger  portion of the total dental benefits
expenditures  by  each  of  its  groups. This product also allows the Company to
offer a dental HMO plan design to cost-conscious customers, while also providing
a  PPO/indemnity  plan  design for coverage to employees who are located outside
the geographic area served by the Company's HMO provider network, or are willing
to  pay  for greater flexibility. Certain states, including Nevada and Oklahoma,
require  that  dental  HMO plan designs be offered only as part of a dual option
product  and  other  states  may  do  so  in  the  future.

Vision  Benefit  Plans.  The  Company  offers  a vision benefit plan to employer
groups,  which  covers routine eye care in exchange for a fixed monthly premium.
In  addition  to  routine  optometric  care, vision plans offered by the Company
generally  cover  a portion of the cost of glasses or contact lenses. The vision
plans  generally  cover  only  frames,  lenses and contact lenses if the covered
individual  has  separate  medical  coverage  for the cost of routine eye exams.
Under  the  vision  plan,  subscribers  can  choose to receive services from any
licensed optometrist or ophthalmologist of their choice. Alternatively, they can
choose  to  receive  services  from  an  optometrist  or  ophthalmologist in the
preferred  provider  network,  in  which case their co-insurance payments at the
time  of  service  would  be  reduced. Currently, the annual revenue from vision
benefit  plans  is  not  material.

Other  Dental  Benefits Products. For self-insured customers, the Company offers
claims administration under an administrative services only ("ASO") arrangement,
under  which  the  Company  does  not  assume the underwriting risk. The Company
receives  an  administrative  fee to process claims and the underwriting risk is
retained  by  the  customer  sponsoring  the self-insured plan. The Company also
provides  access  to its PPO network for a fixed monthly fee based on the number
of  subscribers covered by the product. Under this product, the providers in the
PPO  network offer a reduced fee schedule for services provided to participating
patients.  The  Company  makes  no  payments to the providers in the PPO network
under  this  product.  Currently,  the  annual  revenue from ASO and PPO network
access  products  is  not  material.

MARKETING

The  Company  markets  its  products  to  employer groups, individuals and other
purchasers  primarily  through  independent brokers and consultants. Independent
brokers  are typically engaged by employer groups and other purchasers to select
the dental plan that best suits the needs of the purchaser's employees, in terms
of price, benefit design, geographic coverage of the provider network, financial
stability,  reputation  for  customer  service,  and  other factors. Brokers are
typically  paid  by  the Company, based on a specified percentage of the premium
revenue  collected  from  each  group  contract  generated  by the broker. Large
employers  typically  engage  consultants, instead of brokers, to assist them in
selecting the dental plan that best suits their needs. The consultants generally
perform  the  same  function  as brokers, but are typically paid by the employer


                                        6
<PAGE>
instead  of  the  Company.  Consequently,  large employers expect to pay premium
rates  that have been reduced to reflect the fact that the Company is not paying
a broker commission. Brokers and consultants do not market the Company's benefit
plans  on  an  exclusive  basis.

The  Company  has  an internal sales force that is paid through a combination of
salary  and  incentive  compensation  based  on  the  revenue  generated by each
salesperson.  The function of the internal sales force is primarily to cultivate
relationships  with brokers and consultants, and to help brokers and consultants
present  the Company's benefit plans to their clients in the most favorable way.
A  small  portion  of the Company's sales are generated directly by its internal
sales  force.  The  Company  generally  uses  the  same brokers, consultants and
internal  sales  force  to  market  all  of  its  products.

After an employer group or other purchaser decides to make the Company's benefit
plan  available  to  its employees, the Company's marketing efforts shift to the
potential  subscribers.  Typically,  employees  participate  in  an  annual open
enrollment process, under which they select the employee benefit plans they wish
to  use  for  the  upcoming  year. During the open enrollment process, employees
typically  choose between benefit plans offered by the Company and benefit plans
offered  by  competitors  of the Company, and in some cases, whether to purchase
any  benefit  plans at all. In the case of some employers, the Company's benefit
plans  are  offered to employees on an exclusive basis. Generally, employees can
enroll  in  the  Company's  benefit  plans  or cancel their participation in the
Company's  benefit  plans  only  during  this  annual  open  enrollment process.

In  addition  to  an  internal  sales  force,  the  Company also employs account
managers  who  are  responsible  for  promoting  retention  of  the  clients and
subscribers  enrolled  in  the Company's benefit plans, and marketing additional
products  to  existing  customers.  These  account  managers are responsible for
supporting  the  customer's  open enrollment process to ensure that difficulties
experienced  by  the  customer  during  this process are minimized, and that the
number  of  subscribers  who enroll in the Company's benefit plans is maximized.
The  account  managers  perform  this  function for both new employer groups and
renewing  employer  groups.  Account  managers  are paid a salary plus incentive
compensation  for  selling  additional  products  to  existing  customers.

RATING  AND  UNDERWRITING

The  Company develops the premium rates for each of its benefit plans, including
rate  adjustments  that depend on various group-specific underwriting variables,
based  on past experience with similar products, and based on actuarial analysis
using  industry  claims  cost  information.

When  the Company has the opportunity to submit a proposal for a benefit plan to
a  potential  customer,  it first obtains certain basic underwriting information
from  the  prospective  client.  This information includes whether the potential
customer  currently  has  dental  coverage,  the  benefit design of the existing
dental  coverage, the geographic location of the potential customer's employees,
the number of employees and dependents who are currently enrolled and the number
who  are  eligible for coverage, the portion of the cost of dental coverage that
is  paid  by  the employer, whether the potential customer is considering making
the  Company  the  exclusive  provider  of  dental  coverage,  and other similar
information.  The  Company  then  evaluates  this  information  to  assess  the
underwriting  risk  associated  with  providing  a  dental  benefit  plan to the
potential  customer.  Based  on  this  evaluation,  the  Company  either makes a
proposal that includes a benefit design and premium rates that take into account
the  Company's  risk  assessment,  or  declines  to  make  a  proposal due to an
excessive  amount of underwriting risk, or the lack of compatibility between the
Company's provider network and the location of the potential client's employees.

CLIENTS  AND  CUSTOMER  CONTRACTS

The Company currently provides services to an aggregate of approximately 625,000
individuals,  who  participate  in the Company's benefit plans primarily through
group  contracts  with  over  3,000  employers  and  other  purchasers of dental
benefits. The Company's customers include many large employers, including Boeing
Corporation,  City  of Dallas, County of Los Angeles, Joint Council of Teamsters
#42  Welfare Trust, Southern California Edison, Southern California Gas Company,
and  State  of  California,  among  others. A small portion of the total covered
individuals  participates  in  the  Company's  benefit  plans through individual
dental  HMO  plans  purchased  from the Company. No single customer accounts for
five  percent  (5%)  or  more  of  the  Company's  total  premium  revenue.


                                        7
<PAGE>
The  Company's group contracts generally provide for a specified benefit program
to be delivered to plan participants for a period of one to two years at a fixed
monthly  premium  rate for each subscriber type. The contracts typically provide
for  termination  by  the  customer  upon 60 days written notice to the Company.

PROVIDER  NETWORKS

The  Company  currently has approximately 4,400 dentists in its HMO network, and
has  approximately 10,200 dentists in its PPO network. The Company believes that
a  key  element  in  the  success  of  a dental benefits company is an extensive
network  of participating dentists in convenient locations. The Company believes
that dentists who participate in its HMO and PPO networks are willing to provide
their  services  at reduced fees in exchange for a steady stream of revenue from
patients  enrolled  in  the  Company's  benefit plans. In addition, this revenue
source  for  the  dentist  is  relatively  free  from  collection  problems  and
administrative  costs  sometimes  associated  with  other  types  of  patients.
Therefore, qualified dentists and/or dental groups have generally been available
and  willing  to  participate  in the Company's HMO and PPO networks in order to
supplement  the  patients  for  which  they  are  paid usual and customary fees.

The  Company  requires that all dentists in its HMO network meet certain quality
assessment  program  standards.  Those  standards  include  current professional
license  verification,  adequate liability insurance coverage, a risk management
review  of  the  dental  office  facility to ensure that Occupational Safety and
Health  Act  ("OSHA") requirements and other regulatory requirements are met, an
inspection  of  the office's sterilization practices, and a review of the dental
office  location,  including  parking  availability  and  handicap  access.

The  Company  compensates  each  general  dentist  in  its HMO network primarily
through  monthly  capitation  payments.  Each  general  dentist receives a fixed
monthly  payment  for  each subscriber or dependent that selects that dentist as
his or her primary dentist. The amount of the capitation payment related to each
member varies based on the plan design in which the member is enrolled, but does
not  vary  with  the  nature  or  extent  of the dental services provided to the
member.  In  addition  to  capitation payments, the general dentists may receive
supplemental  payments  from  the Company and co-payments from the patients. The
Company  makes a fixed supplemental payment to the general dentist each time the
dentist  delivers specified procedures to members enrolled in certain plans, who
have  selected  that  dentist  as  their  general  dentist.  The  amount  of the
supplemental  payment  varies depending on the specific procedure performed, and
the  amount  of  the co-payment collected from the member, which varies with the
benefit  plan design. Supplemental payments are designed to mitigate the risk to
the  dentist associated with procedures that require the payment of a laboratory
fee  by  the  dentist,  and  members  who  require an extensive amount of dental
services.  Supplemental  payments are low enough to avoid providing an incentive
for  the  dentist  to  deliver services that are not cost-effective. The Company
believes  the use of supplemental payments provides for a higher level of member
and  provider  satisfaction  with  the  Company's  dental HMO plans. The general
dentist  also  receives  co-payments  from  the  members  for  certain  types of
services,  which  vary  based  on  the  plan  design  under which each member is
covered.  No  individual dental office provides services to five percent (5%) or
more  of  the  members  enrolled  in  the  Company's  managed  care  plans.

The  Company's  dental  HMO  network  also  includes specialists in the areas of
endodontics, oral surgery, orthodontics, pedodontics, and periodontics. In order
for  a  member  to  receive  services  from a specialist, those services must be
requested  by  the  member's  general  dentist  and  approved  in advance by the
Company.  Specialists  are  reimbursed  by the Company based on a negotiated fee
schedule,  and  also  receive co-payments from members based on the benefit plan
design  under  which  each  member  is  covered.

Dentists  in the Company's PPO network are compensated based on a negotiated fee
schedule  that  is  generally 20 to 40 percent less than the usual and customary
fees  for  that  provider's geographic area. Non-contracted dentists who provide
services  to  subscribers  and  dependents enrolled in PPO plans are compensated
based  on  usual  and  customary  fees in each geographic area, and may bill the
subscriber  or  dependent  for  any  remaining  balance.

The  Company  employs  provider  relations  representatives who are based in the
geographic  markets served by the Company. These representatives are responsible
for  developing  and  maintaining the Company's network of HMO and PPO dentists.
They  negotiate contracts with dentists and also assist the network providers in
the  administration  of the Company's benefit plans. In the event that a network
dentist  terminates  his  relationship  with the Company, the provider relations
representative  is responsible for recruiting new providers to meet the needs of
the  patients  enrolled  in  the  Company's  benefit  plans.


                                        8
<PAGE>
The  dentists  in  the  Company's HMO and PPO networks are free to contract with
other  dental benefit plans, and both the provider and the Company can typically
terminate  the  contract  at  any  time  upon  60  days prior written notice. In
accordance  with  the contract, the Company may also terminate the contract "for
cause"  upon  15  days  prior  written  notice.  The Company can also change the
reimbursement  rates,  member  co-payments,  and  other  financial  terms  and
conditions  of  the  contract  at  any  time,  with  ten (10) days notice to the
provider.  The  Company's  contracts  with  dentists in its HMO and PPO networks
require the dentists to maintain professional liability insurance with a minimum
coverage  of  $200,000 per claim, and $600,000 in the aggregate per year, and to
indemnify  the  Company for claims arising from the dentist's acts or omissions.

QUALITY  MANAGEMENT

The  Company  maintains  a quality management program with respect to its dental
HMO  business under the direction of its Vice President and Dental Director. The
Company's  quality  management  program  includes  verification  of  provider
credentials,  assessment  of  each  dentist's  compliance  with applicable state
regulatory  standards  and  practice  standards  established  by  the  Company,
monitoring of patient appointment availability and accessibility of dental care,
monitoring  of  patient  satisfaction  through  member  surveys and other tools,
analysis  of  dental  care  utilization  data,  addressing member complaints and
grievances, and assessment of other qualifications of dentists to participate in
the  Company's  HMO  network.

The Company maintains a credentialing committee, which uses information provided
by  an  NCQA-certified Credentialing Verification Organization ("CVO") to verify
each  provider's  licensing  status,  insurance  coverage,  and  compliance with
applicable  federal  and  state  regulations,  and  to  review  the  National
Practitioners  Data  Bank for complaints filed against the provider. The Company
also  uses  an  outside  contracting  service  to  perform on-site dental office
quality  assessment  reviews  to  determine  appropriateness  of care and review
treatment  outcomes.

The  Company  uses  an  independent  outside  service  to conduct regular member
satisfaction  surveys.  These  surveys  monitor the level of member satisfaction
with  respect to the dental services provided by network dentists, the choice of
providers  and  availability  of  appointments within the Company's network, the
benefits  covered  by  the  Company's  benefit  plans,  and the customer service
provided by the Company. The results are used by the Company to determine how it
can  improve  its  provider  network  and  the  level of service provided to its
members.

UTILIZATION  REVIEW

The  Company  monitors  the  utilization  rates  for  various  dental procedures
provided  by  general  dentists  in its HMO network, as well as the frequency of
specialist  referrals  initiated  by  those  dentists,  based  on  paid  claim
information  and  encounter data submitted by the dentists. The analysis of this
information,  including  comparisons among providers in the network, enables the
Company to determine whether any of its providers display practice patterns that
are  not  cost-effective, or practice patterns that are otherwise inappropriate.
When  this  information  shows a potentially inappropriate practice pattern, the
Company  conducts  a  more  focused  review  of the dental practice in question.

The  Company  also  monitors the utilization rates for various dental procedures
provided  by  dentists  in its PPO network, based on paid claim information. The
analysis  of  this  information,  including  comparisons  among providers in the
network,  enables  the  Company  to  focus  its  provider contracting efforts to
develop  a  more cost-effective PPO network, as well as to improve the design of
its  PPO/indemnity  benefit  plans.  This information also allows the Company to
demonstrate  savings achieved by the Company and its subscribers and dependents,
as  a  result  of  the  contracting  arrangements  between  the  Company and the
providers  in  its  network.

MEMBER  SERVICES

The  Company  provides basic member services from its National Service Center in
Aliso  Viejo,  California  through  the  use of toll-free telephone numbers. The
toll-free  telephone  numbers  provide members and dental offices with access to
automated  services  24  hours  per  day,  and  with  access  to member services
representatives  from  5:00 a.m. to 6:00 p.m. Pacific Time. Automated service is
available  24  hours a day for inquiries such as selection of a network dentist,
requests  for  identification  cards,  and eligibility verification. The Company
uses  an  automated  call  distribution  ("ACD")  system  for  its management of
customer  service  calls.


                                        9
<PAGE>
The  Company maintains a Quality Management ("QM") Committee under the direction
of  its  Vice President and Dental Director. The QM Committee is responsible for
the  disposition of all types of member grievances with respect to the Company's
dental  HMO  plans.  Member grievances are typically originated through a member
services  call or a letter written to the Company by the member. The Company has
a  standard  grievance  resolution  process  that  begins with a member services
representative  who  attempts to resolve the grievance. In the event this is not
successful,  or  the  grievance is related to dental care issues that are beyond
the expertise of a member services representative, the grievance is addressed by
the  Company's  Quality  Management  department.  The  QM  Committee  addresses
grievances  that  cannot  be  resolved by the Quality Management department. The
Company  responds  to  all  member  grievances with a written disposition of the
grievance within 30 days of receipt of the grievance. After the QM Committee has
responded  to  the  grievance,  the  member  has  the  option  of submitting the
grievance  to binding arbitration, which is conducted according to the rules and
regulations  of  the  American  Arbitration  Association.

The  QM  Committee  monitors the frequency of member grievances by type, and the
average  time in which the Company responds to grievances, in order to determine
ways  it  can  improve  its  communications  with members and network providers,
improve  its  customer  service, and determine ways to improve the efficiency of
the  grievance  resolution  process.

MANAGEMENT  INFORMATION  SYSTEMS

The Company currently uses two primary business applications for its eligibility
files,  monthly  billings,  claims  processing, commission payments, utilization
management, and provider network activities, one for its dental HMO business and
one  for  its  PPO/indemnity dental business. As part of the Company's long-term
information  systems  strategic plan, the Company is in the process of combining
these  two  systems  into  a  single  application  that  is  expected  to reduce
administrative  expenses  and  enhance  customer  service.  Both  of the primary
business  applications  include  comprehensive  information  on  the  Company's
eligibility  files,  benefit  plan  designs,  premium  rates,  claims processing
activities,  provider payment arrangements, and broker commissions. Both systems
are  also  flexible enough to accommodate a wide variety of benefit plan designs
to  meet  the needs of the Company's customers. The system used in the Company's
dental  HMO  business is a proprietary application that is continuously modified
by  the  Company to meet the changing needs of this business. The system used in
the  PPO/indemnity  business  is a standard application purchased from a vendor,
which  generally  meets  the  needs  of  the  Company's  PPO/indemnity business.

During 2001, the Company implemented an enhanced accounts receivable application
that  is  currently  used  for  its  dental  HMO  business. This application was
purchased  from  a  software  vendor, and has been integrated with the Company's
proprietary dental HMO system. The Company believes this new accounts receivable
system  provides  greater  assurance  that the Company is collecting appropriate
amounts  from  its  customers,  has  improved  the efficiency of the billing and
collections  process,  and  improves  customer  service  related  to billing and
collections  issues.

The  Company  uses  a personal computer network-based general ledger system that
includes  reporting and analysis tools that allow the extraction and download of
data  to  spreadsheet  programs  for  further  analysis.  The Company also makes
extensive use of its email system in coordinating the activities of employees in
various  office  locations  and  communicating  with  customers,  brokers  and
providers.  The  Company recently implemented a Customer Relationship Management
system,  also as part of its long-term information systems strategic plan, which
it  uses  to manage customer and provider relationships. The Company also uses a
variety  of  other,  less  significant  applications  in  various  areas  of its
business. All of the Company's applications are integrated into a single network
so  employees  can  easily  access  any  needed  application  from their desktop
computers.  During 2000, the Company purchased a new computer to run its primary
business  applications,  which  has  significantly  faster  processors  and  a
significantly  larger  amount  of  storage capacity than the computer previously
used. The Company believes this computer will satisfactorily serve the Company's
needs  for  at  least  the  next  two  to  three  years.

RISK  MANAGEMENT

Dentists  in  the Company's HMO and PPO networks generally indemnify the Company
against  professional liability claims and are required to maintain professional
liability insurance with specified minimum amounts of coverage. The Company also
maintains  $10 million of general and professional liability insurance coverage,
which  covers losses on a claims made basis. The Company believes this amount of
coverage  is adequate to manage the ordinary exposure of operating its business.


                                       10
<PAGE>
However,  there  can  be  no  assurance  that  this  amount of coverage would be
adequate to cover potential claims against the Company, or that adequate general
and  professional  liability insurance coverage will be available to the Company
in  the  future  at  a  reasonable  cost.

COMPETITION

The  Company  operates  in  a  highly competitive environment and faces numerous
competitors  in  each  of  its  geographic  markets with respect to all products
offered  by  the  Company.  The  Company's  competitors  include large insurance
companies  that  offer dental HMO benefit plans and PPO/indemnity dental benefit
plans,  medical  HMOs that offer dental benefit plans, self-insured dental plans
provided  by  employers,  union  trust  funds  and  other  group purchasers, and
numerous  local or regional companies that offer various types of dental benefit
plans.  Many  competitors  are  significantly  larger than the Company, and have
substantially  greater  financial  resources  than  the  Company.

The Company believes that the key factors in an employer's selection of a dental
benefit  plan  include  the  premium rates charged, the comprehensiveness of the
dental  benefits  offered,  the  range  of  benefit  designs  offered,  the
responsiveness  related  to  customer  service  activities,  and  the  perceived
quality,  accessibility  and  convenience  of the dental offices in the provider
network.  There are competitors that compete aggressively with respect to all of
these  factors  in each of the geographic markets in which the Company operates,
and  many  employers,  particularly  large  employers, make their selection of a
dental  benefit plan through a competitive bidding process. There is significant
price  competition  in  each  of  the  Company's geographic markets, which could
impair  the  Company's  ability  to  sell its dental benefit plans at profitable
premium rates. The Company anticipates that this price competition will continue
to  exist  during  the  foreseeable  future.

Large national insurance companies that offer both managed care dental plans and
PPO/indemnity  dental  plans  may  have  a  competitive  advantage  over smaller
competitors, such as the Company, due to larger provider networks located across
the  United States, the availability of multiple product lines other than dental
benefits,  established  business relationships with large employers, better name
recognition, and greater financial and information system resources. The Company
believes it can effectively compete with these insurance companies by offering a
flexible  array  of  benefit  plan  designs,  and by maintaining a high level of
customer  service  with  respect to its employer groups, members, dental service
providers,  and  brokers.  Some  medical  HMOs  have  developed managed care and
PPO/indemnity  dental  benefit  plans  in-house, and others contract with dental
benefits  companies  to  provide  those  products.  The  Company believes it can
compete  effectively  with medical HMOs that offer dental benefit plans, and the
Company  may pursue opportunities to form relationships with medical HMOs, under
which  the  medical  HMOs  offer  the  Company's  dental  benefit plans to their
customers.

Other  than  the minimum net worth requirements imposed by state regulators, and
the  need  to  obtain a license from the applicable state regulator, which could
take  a  substantial  period of time, there are no significant barriers to entry
into  the  dental  benefits  business  by potential competitors. There can be no
assurance  that  the  Company  will be able to compete successfully with any new
competitors.  Additional  competition  could  adversely  impact  the  Company's
profitability  and  growth prospects through decreases in premium rates, and the
loss  of  customers  or  dental  service  providers.

GOVERNMENT  REGULATION

The  Company's operations are subject to an extensive amount of state regulation
in  each  of  the  states  in  which it operates. The Company's most significant
dental  HMO  subsidiaries are subject to regulation by the California Department
of  Managed  Health  Care,  the  Florida  Department  of Insurance and the Texas
Department  of Insurance. In addition, several other subsidiaries of the Company
are  dental HMO plans that are licensed in the states in which they operate. The
Company's  dental  insurance subsidiary is primarily regulated by the California
Department  of  Insurance,  and is also subject to regulation by state insurance
regulatory  agencies  in  all  of  the  states  in  which  it  is  licensed.

The  Company's  dental HMO plans are subject to regulations that vary from state
to  state,  and  generally  include  regulations  with  respect  to the scope of
benefits  provided  to  members,  the  content  of all contracts with customers,
dental  service  providers and others, advertising, the maintenance of a minimum
amount  of net worth, the maintenance of restricted deposits, procedures related
to  quality  assurance, enrollment procedures, the maximum percentage of premium


                                       11
<PAGE>
revenue  that  may be spent on general and administrative expenses, minimum loss
ratios,  certain  "any  willing  provider"  requirements  which  may  limit  the
Company's ability to restrict the size of its provider network, the relationship
between  the  Company  and  the  dentists in its provider network, the Company's
procedures  for  resolving  member  grievances,  and  premium  rates.

The  Company's  PPO/indemnity dental plans are subject to state regulations with
respect  to the maintenance of a minimum amount of net worth, the maintenance of
restricted  deposits  for the benefit of certain state regulators, the nature of
investments held by the Company, insurance policy forms, advertising, and claims
processing  procedures.  Insurance companies in general are subject to extensive
regulation  and  are  typically required to have significantly greater financial
resources  than  dental  HMOs.

The  Company's  ability  to expand its operations into states in which it is not
currently  licensed  is  dependent on the regulatory review process conducted by
the applicable state regulatory agency in each state. Such reviews may take from
six  to  twenty-four  months,  and  must  be satisfactorily completed before the
Company  could  commence  operations  in  the  applicable  state.

Since  some  states  will  only  license  full service health plans, the Company
cannot  offer  its  dental  HMO  plans  in  those  states, except pursuant to an
arrangement  with a full service medical HMO. Other states permit only nonprofit
organizations  to  become  licensed  as  dental  HMO  plans,  again limiting the
Company's  access  to  business in those states. The heavily regulated nature of
the  Company's  business  imposes  a  variety  of  potential  obstacles  to  any
geographic expansion by the Company, and could limit the Company's future growth
potential.  This  regulatory  environment also governs the conduct and expansion
prospects of existing and new competitors, thereby providing a potential barrier
to  entry  for  potential  competitors.

The  Company  is  subject to the Health Insurance Portability and Accountability
Act  of 1996 ("HIPAA"). HIPAA imposes responsibilities on the Company, including
but  not  limited  to,  privacy  notice requirements to members of the Company's
benefit  plans,  the  security  and  privacy of individually identifiable health
information,  the  use  of  unique  identifiers  for  all  of  the  contractual
relationships  the  Company has with members, providers and group and individual
contract holders, the adoption of standardized electronic transaction code sets,
and  prevention of unauthorized use or disclosure of personal data maintained by
the Company. The Company is in the process of developing policies and procedures
to  comply  with these requirements and has provided privacy notices as required
by  HIPAA  and  the  Gramm-Leach-Bliley  Act.

There  is currently no other regulation of the Company's business at the federal
level.

TRADEMARKS,  SERVICEMARKS  AND  TRADENAMES

The  Company  currently  markets  all  of  its  products  under  the  brand name
"SafeGuard."  The  Company  has  filed,  received approval, and obtained renewal
protection  from  the  United  States  Patent  and  Trademark office for certain
trademarks  and  tradenames  for  names  and products used by the Company in its
ordinary  course of business. The Company has received a trademark, service mark
or  tradename  for  the  following  words  and  phrases  used  with  and without
distinctive  logos  maintained  by  the  Company:

o    SafeGuard(R)  used  with a distinctive logo depicting a modified smile used
     in  connection  with  all  the  products  offered  by  the  Company;

o    SafeGuard  Health  Plans(R)  used  in  descriptive material to describe the
     products  offered  by  the  Company;

o    SafeGuard  Dental  Plans(TM)  used to describe the various dental HMO plans
     offered  by  the  Company;  and

o    SafeHealth  Life(R) used with a descriptive logo depicting a modified smile
     used  by  the  Company  to  describe  its  PPO/indemnity  dental  plans.

Collectively,  these trademarks, service marks and tradenames were first used in
interstate  commerce  in  1984  and  have  been continuously used thereafter. In
addition,  the  Company  has received trademark/service mark protection from the
United  States  Assistant  Commissioner  for  Trademarks of its distinctive logo
depicting  a  smile  that  the  Company  is  currently  utilizing  in interstate
commerce.


                                       12
<PAGE>
EMPLOYEES

At March 15, 2002, the Company had approximately 200 employees, of which 37 were
represented  by  a  labor  union.  The  Company considers its relations with its
employees  to  be  satisfactory. The Company provides typical employee benefits,
including  paid vacation, holiday and sick time, a portion of the cost of health
insurance, dental and vision coverage for the employee's family, life insurance,
a  401(k) plan that includes a matching contribution consisting of the Company's
common  stock,  and  the  opportunity  to  take advantage of a flexible spending
account  under  Section 125 of the Internal Revenue Code. Employees are eligible
to  participate  in  the  401(k) plan upon completion of three months of service
with the Company. Under the 401(k) plan, an employee is allowed to contribute up
to  20%  of  his  total compensation to the plan each pay period, subject to the
annual  limit  prescribed  by the Internal Revenue Code. Effective July 1, 2001,
the  Company  adopted  a  matching contribution program, under which the Company
makes  a  contribution  equal  to  a  specified  percentage  of  each employee's
contribution,  in  the  form  of  common  stock  of  the  Company.  The matching
contribution  percentage,  which  was  25%  for  2001, is set in advance of each
fiscal  year  by  the  Company's board of directors, and has been set at 25% for
2002.  The  Company  contributed 33,000 shares of its common stock to the 401(k)
plan  for the year ended December 31, 2001. The Company made no contributions to
the  plan  during  the  years ended December 31, 2000 and 1999. Employees become
vested  in the Company's contributions to the 401(k) plan at the rate of 20% per
year  during  the first five years of employment with the Company. Employees are
fully  vested  in  their  contributions  to  the  401(k)  plan  at  all  times.

RISK  FACTORS

The  Company's  business  and  competitive environment includes numerous factors
that  expose  the Company to risk and uncertainty. Some risks are related to the
dental  benefits  industry in general and other risks are related to the Company
specifically.  Due  to  the  risks and uncertainties described below, as well as
other risks described elsewhere in this Annual Report on Form 10-K, there can be
no  assurance  that  the  Company  will  be  able to maintain its current market
position  or  its  profitability.  Some of the risk factors described below have
adversely affected the Company's operating results in the past, and all of these
risk  factors  could  affect  its  future  operating  results.

Operating  Losses. The Company incurred significant operating losses during each
of  the three years ended December 31, 2000. A number of actions have been taken
since the beginning of 2000 to improve its profitability, including increases in
premium  rates,  reductions in certain types of provider payments, a decrease in
the  amount of office space used, consolidation of its administrative operations
into  one  location which facilitated a decrease in the number of its employees,
and decreases in various other selling, general and administrative expenses. The
Company's  operating  results  have  consistently  improved during the two years
ended  December  31,  2001,  as  shown  in  its  quarterly results of operations
included  in  Note 13 to the accompanying consolidated financial statements. The
Company  plans  to  further  improve  its profitability through various actions,
including  the  improvement  of  various  customer  service  functions,  further
streamlining  its  operations,  increasing  customer  retention,  increasing its
volume  of new business, and the development of new products. However, there can
be  no  assurance  that  the  Company  will  be successful in implementing those
actions  or  maintaining  its  profitability.

Stockholder  Litigation.  In  December  1999,  a stockholder lawsuit against the
Company  was  filed,  which alleged that the Company and certain of its officers
violated  certain  securities  laws  by  issuing  a  series of alleged false and
misleading  statements  concerning  the Company's publicly reported revenues and
earnings  during  a  specified  class  period.  On September 12, 2000, after the
plaintiffs had filed a first amended complaint, the Federal District Trial Court
dismissed  the lawsuit with prejudice, stating that the plaintiffs had failed to
state  a  claim  against  the  Company and its officers. On October 6, 2000, the
plaintiffs  filed  an  appeal of the dismissal of the lawsuit, and the dismissal
was  overturned on February 22, 2002. The case was remanded back to the District
Court  with  instructions  to  allow  the  plaintiff  to  file  a second amended
complaint.  The  Company  has  directors  and  officers  liability insurance and
intends  to  vigorously defend any second amended complaint that may be filed by
the  plaintiff.  However, there can be no assurance that the ultimate outcome of
this  litigation  will  not have an adverse effect on the Company's consolidated
financial  position  or  results  of  operations.

Government  Regulation.  The  dental  benefits  industry is subject to extensive
state  and  local  laws,  rules and regulations. Each of the Company's operating
subsidiaries  is  subject  to  various  requirements  imposed  by state laws and
regulations  related to the operation of a dental HMO plan or a dental insurance


                                       13
<PAGE>
company,  including  the maintenance of a minimum amount of net worth by certain
subsidiaries.  In addition, regulations applicable to dental benefit plans could
be  changed  in  the  future. There can be no assurance that the Company will be
able  to  meet  all  applicable  regulatory  requirements  in  the  future.

Health  Insurance  Portability  and  Accountability Act of 1996 ("HIPAA"). HIPAA
imposes  various  responsibilities  on  the  Company,  as  described above under
"Government  Regulation."  The  Company is in the process of developing policies
and  procedures  to comply with these requirements. The total cost of compliance
with  HIPAA is not known at this time. There is a risk that the Company will not
be able to successfully implement all of the HIPAA requirements. There is also a
risk that the cost of compliance with HIPAA could have a material adverse impact
on  the  Company's  financial  position.

Liabilities Related to Dental and Orthodontic Practices. The Company has various
liabilities  in  connection  with  the  dental and orthodontic practices sold in
October  2000,  including  but  not  limited  to,  the  obligation  to  complete
orthodontic  treatments  for certain dental HMO patients who previously paid for
the  treatments  in  full.  The  amount  of  these  liabilities  is  subject  to
uncertainties  and  there  can be no assurance that the ultimate amount of these
liabilities  will  not exceed the amounts accrued on the Company's balance sheet
as  of  December  31,  2001.

Contingent  Lease  Obligations.  As  of  December  31,  2001,  the  Company  is
contingently  liable  for  an  aggregate of approximately $4.4 million of office
lease  obligations  related  to the dental and orthodontic practices sold by the
Company.  These  leases have been assigned to the purchasers of those practices,
but  there  can  be no assurance that the persons and/or entities to which these
office  leases  were assigned will make the lease payments, and that the Company
will  not  become  liable  for  those  payments.

Payments  Due on Promissory Notes. In connection with the sale of certain dental
practices,  the  dentists  who  purchased  those  practices  issued  long-term
promissory  notes  secured  by  the assets purchased. Although payments on these
promissory notes are current at the present time, there can be no assurance that
each  of  these  dentists will make timely payments on these promissory notes in
the  future.

Possible  Volatility  of  Stock  Price. The market price of the Company's common
stock  has  fluctuated  significantly  during  the  past  few years. Stock price
volatility  can  be  caused  by  actual  or  anticipated variations in operating
results, announcements of new developments, actions of competitors, developments
in  relationships  with  clients,  and  other  events  or factors. Even a modest
shortfall  in  the  Company's operating results, compared to the expectations of
the investment community, can cause a significant decline in the market price of
the  Company's  common  stock.  In addition, the trading volume of the Company's
common stock is relatively low, which can cause fluctuations in the market price
and a lack of liquidity for holders of the Company's common stock. The fact that
the  Company's  common  stock  is  not listed on an exchange can have a negative
influence  on  the trading volume of the stock. Broad stock market fluctuations,
which may be unrelated to the Company's operating performance, could also have a
negative  effect  on  the  Company's  stock  price.

Competitive  Market.  The Company operates in a highly competitive industry. Its
ability to maintain its profitability is affected by significant competition for
employer  groups and for contracting dental providers. There can be no assurance
the  Company  will  be  able  to  compete  successfully  enough  to maintain its
profitability.  Existing  or new competitors could have a negative impact on the
Company's revenues, earnings and growth prospects. The Company expects the level
of  competition  to  remain  high  for  the  foreseeable  future.

Ability  to  Maintain  Revenue. The Company's total revenue decreased from $97.3
million  in 2000 to $84.8 million in 2001, primarily due to the loss of a number
of  its  customers. The Company intends to expand its business in the future and
to  increase  its annual revenue, but there can be no assurance the Company will
be  able  to  maintain  its  current  level  of revenue or to increase it in the
future.  The  ability  of  the  Company  to maintain its existing business or to
expand  its  business  depends  on  a  number of factors, including existing and
emerging  competition,  its  ability  to  renew  its relationships with existing
customers on an annual basis, its ability to maintain effective control over the
cost of dental services, and its ability to obtain sufficient working capital to
support  an  increase  in  revenue.

Utilization  of  Dental  Care Services. Under the Company's PPO/indemnity dental
plan  designs, the Company assumes the underwriting risk related to the cost and
rate  at  which dental care services are utilized by subscribers and dependents.
If  the Company does not accurately assess these underwriting risks, the premium
rates  charged  may  not  be sufficient to cover the cost of the dental services
delivered.  This could have a material adverse effect on the Company's operating
results.


                                       14
<PAGE>
Under  the  Company's  dental  HMO  plan  designs,  the  Company  also  assumes
underwriting  risk related to the cost and rate at which specialist services are
utilized  by  subscribers  and  dependents, to the cost of supplemental payments
made to general dentists, and to the cost of dental services provided by general
dentists  with  whom the Company does not have standard capitation arrangements.
If  the Company does not accurately assess these underwriting risks, the premium
rates  charged  to  its customers may not be sufficient to cover the cost of the
dental  services  delivered  to  subscribers  and  dependents. This could have a
material  adverse  effect  on  the  Company's  operating  results.

Effect  of  Adverse  Economic  Conditions.  The  Company's  business  could  be
negatively  affected  by  periods  of  general  economic  slowdown, recession or
terrorist activities which, among other things, may be accompanied by layoffs by
the  Company's  customers, which could reduce the number of subscribers enrolled
in  the Company's benefit plans, and by an increase in the pricing pressure from
customers  and  competitors.

Relationships  with  Dental  Providers.  The  Company's  success is dependent on
maintaining competitive networks of dentists in each of the Company's geographic
markets.  Generally,  the  Company  and  the  network  dentists  enter  into
non-exclusive  contracts  that  may  be  terminated by either party with limited
notice.  The  Company's  operating results could be negatively affected if it is
unable to establish and maintain contracts with a competitive number of dentists
in  locations that are convenient for the subscribers and dependents enrolled in
the  Company's  benefit  plans.

Dependence  on Key Personnel. The Company believes its success is dependent to a
significant  degree  upon  the abilities and experience of its senior management
team.  The  loss  of  the services of one or more of its senior executives could
negatively  affect the Company's operating results. The Company has entered into
employment  agreements  with  nine  members of senior management, of which eight
agreements  expire  during  2002.

RECENT  DEVELOPMENTS

On  March  1, 2000, the Company entered into a recapitalization transaction with
an  investor  group (the "Investors"), the revolving credit facility lender (the
"Bank"),  and the holder of the senior notes payable (the "Senior Note Holder").
In  this  transaction,  the  Investors loaned $8.0 million to the Company in the
form  of  an  investor  senior  loan,  due  April  30,  2001.  As  part  of this
transaction,  the  Investors,  the  Bank,  and  the Senior Note Holder agreed to
convert  the  $8.0 million investor senior loan, the outstanding balance of $7.0
million under the revolving credit facility plus accrued interest, and the $32.5
million  of senior notes payable plus accrued interest, to convertible preferred
stock,  subject  to regulatory approval and an increase in the authorized shares
of  the  Company's  common  stock.

Effective  as  of January 31, 2001, the Company completed the conversion of this
debt  into 300,000 shares of convertible preferred stock. The estimated value of
the  convertible  preferred  stock was $137.50 per share as of January 31, 2001,
which is based on the closing price of the Company's common stock on January 31,
2001,  which  was  $1.375 per share, and the fact that each share of convertible
preferred  stock  is  convertible into 100 shares of common stock. Based on this
estimated  value, the conversion transaction resulted in a pre-tax gain of $11.3
million,  which is net of approximately $350,000 of transaction costs. There was
no  income  tax  effect  related  to  this transaction, due to the Company's net
operating  loss  carry-forwards  for tax purposes, as discussed in Note 9 to the
accompanying  consolidated  financial  statements.

The  convertible  preferred  stock  does  not accrue dividends of any kind. Each
share  of  convertible  preferred stock is convertible into 100 shares of common
stock  at the option of the holder. The convertible preferred stock entitles the
holder to one vote for each share of common stock into which the preferred stock
is  convertible, with respect to all matters voted on by the common stockholders
of  the  Company,  except  for  the  election  of  directors. The holders of the
convertible  preferred  stock have the right to elect a total of five members of
the  board  of  directors, and the holders of the common stock have the right to
elect  the  remaining  two  directors. The convertible preferred stock has a $30
million  liquidation  preference  over  the  Company's  common  stock.

As  a  result  of  the  conversion  transaction,  the  ownership interest of the
previously  existing  common  stockholders  of  the  Company  was  reduced  to


                                       15
<PAGE>
approximately  14%  of the common stock interests of the Company. In March 2000,
in connection with the recapitalization transaction, the Company agreed to place
four new directors, who represented the Investors, the Bank, and the Senior Note
Holder,  on  its board of directors. Three of those directors were placed on the
board  in  March  2000,  and  the  fourth director was placed on the board as of
January  31,  2001,  at  which time the Bank sold its interest in the Company to
other  existing  stockholders. These four new directors constitute a majority of
the  board  of  directors,  which  currently  has  a  total  of  seven  members.

In  1999,  in  connection  with a restructuring of the senior notes payable, the
Company issued warrants to purchase 382,000 shares of its common stock for $4.51
per  share  to the Senior Note Holder. The warrants were cancelled without being
exercised,  in  connection  with the conversion of the senior notes payable into
convertible  preferred  stock  effective  January  31,  2001.

The  Company sold all of its general dental practices in 1996 and 1997, and sold
all  of  its  orthodontic  practices  in  1998.  Certain  of  the general dental
practices  and  all of the orthodontic practices were sold to a single purchaser
(the  "Purchaser"),  in  exchange  for long-term promissory notes. The Purchaser
ultimately defaulted on its obligations to the Company, and in October 2000, the
Company  completed a transaction with the Purchaser and another third party (the
"New  Purchaser"),  in which the practices originally sold to the Purchaser were
sold  to  the  New Purchaser. In this transaction, the Purchaser transferred its
interest  in  the dental and orthodontic practices to the New Purchaser, the New
Purchaser paid $2.4 million to the Company and placed an additional $1.5 million
in  an  escrow account for the benefit of the Company, and the Company agreed to
pay  certain obligations related to these practices. These obligations consisted
primarily  of payroll, dental office lease obligations, patient refunds, and the
obligation  to  complete  the orthodontic treatments for dental HMO patients who
previously  paid  for the treatments in full. These obligations either had to be
paid  in  order  to  complete the transaction, or were obligations for which the
Company  could  have  been  contingently  liable in any event. The amount of the
escrow account that may be realized by the Company, and the ultimate cost of the
obligations  assumed by the Company, are reflected on the Company's consolidated
balance  sheet  based  on  the  Company's  best estimates, but these amounts are
subject  to  various  uncertainties. See Note 5 to the accompanying consolidated
financial statements for a discussion of impairment charges that were recognized
in  2000  and  1999  in  connection  with  this  transaction.

ITEM  2.  PROPERTIES
--------------------

The  Company  leases a total of approximately 68,000 square feet of office space
in  a  single  location in Aliso Viejo, California, under a lease agreement that
expires in 2008. Approximately 12,000 square feet of this space is not currently
used  by the Company, but is subleased to unrelated third parties. The remaining
56,000  square  feet  of  office  space  is  used  for  the  Company's corporate
headquarters  and  its  National  Service Center, which includes member services
activities,  eligibility  file  maintenance,  billing  and  collections,  claims
processing and other similar customer support activities, and for its California
regional  office.  In addition, the Company leases office space in Walnut Creek,
California; Coral Springs and Tampa, Florida; and Dallas and Houston, Texas. The
Company  leased  all of the office space used by its previously owned dental and
orthodontic practices. The Company remains contingently liable for these leases,
which  expire  on  various  dates  through  2007, as discussed in Note 10 to the
accompanying  consolidated  financial  statements. In the opinion of management,
the  Company's  facilities  are  adequate  for  its  current  needs.

ITEM  3.  LEGAL  PROCEEDINGS
----------------------------

The  Company  is  subject  to  various  claims  and legal actions arising in the
ordinary  course of business. The Company believes all pending claims either are
covered  by  liability insurance maintained by the Company or by dentists in the
Company's  provider  network,  or will not have a material adverse effect on the
Company's  consolidated financial position or results of operations. In December
1999,  a  stockholder  lawsuit against the Company was filed, which alleged that
the  Company  and  certain  of  its officers violated certain securities laws by
issuing  a  series  of  alleged  false  and misleading statements concerning the
Company's  publicly  reported  revenues  and  earnings  during a specified class
period.  On  September  12, 2000, after the plaintiffs had filed a first amended
complaint,  the  Federal  District  Trial  Court  dismissed  the  lawsuit  with
prejudice,  stating  that the plaintiffs had failed to state a claim against the
Company  and its officers. On October 6, 2000, the plaintiffs filed an appeal of
the  dismissal  of the lawsuit, and the dismissal was overturned on February 22,
2002.  The  case  was  remanded  back to the District Court with instructions to
allow  the  plaintiff  to  file  a  second  amended  complaint.  The Company has
directors  and officers liability insurance and intends to vigorously defend any
second  amended  complaint that may be filed by the plaintiff. In the opinion of


                                       16
<PAGE>
management, the ultimate outcome of this matter will not have a material adverse
effect  on  the  Company's  consolidated  financial  position  or  results  of
operations,  although  there  can  be  no  assurance that this will be the case.

ITEM  4.  SUBMISSION  OF  MATTERS  TO  A  VOTE  OF  SECURITY  HOLDERS
---------------------------------------------------------------------

None.

                                     PART II

ITEM  5.  MARKET  FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
--------------------------------------------------------------------------------

(a)  MARKET  INFORMATION

The  Company's  common  stock  is traded on the NASDAQ Over The Counter Bulletin
Board  under  the  symbol  SFGD. The following table sets forth the high and low
sale  prices  of  the  Company's  common stock each calendar quarter. The prices
shown  are  based  on transactions between market makers in the Company's stock,
and  do  not  necessarily  represent transactions between non-dealer principals.

                                                 HIGH      LOW
                                              ---------  --------
    Year ended December 31, 2002:
      First Quarter, through March 15, 2002.  $    1.95  $   1.19

    Year ended December 31, 2001:
      First Quarter. . . . . . . . . . . . .  $    2.75  $   0.88
      Second Quarter . . . . . . . . . . . .       1.80      1.25
      Third Quarter. . . . . . . . . . . . .       2.00      1.15
      Fourth Quarter . . . . . . . . . . . .       2.40      1.17

    Year ended December 31, 2000
      First Quarter. . . . . . . . . . . . .  $    3.50  $   0.41
      Second Quarter . . . . . . . . . . . .       1.50      0.50
      Third Quarter. . . . . . . . . . . . .       0.91      0.40
      Fourth Quarter . . . . . . . . . . . .       1.00      0.42


(b)  HOLDERS

As  of  March  15,  2002,  there were approximately 500 holders of the Company's
common  stock,  including approximately 400 holders of record, and 21 holders of
the  Company's  convertible  preferred  stock.

(c)  DIVIDENDS

No  cash dividends have been paid on the Company's common stock, and the Company
does  not  expect  to  pay  cash  dividends  during  the foreseeable future. The
Company's  convertible  preferred  stock  does not accrue dividends of any kind.

STOCKHOLDER  RIGHTS  PLAN

In  March 1996, the board of directors of the Company declared a dividend of one
right  to  purchase  a  fraction of a share of its Series A Junior Participating
Preferred  Stock,  having  rights,  preferences,  privileges and restrictions as
designated,  and  under  certain  circumstances,  other  securities,  for  each
outstanding share of the Company's common stock. The dividend was distributed to
stockholders  of  record  at the close of business on April 12, 1996. The Rights
become  exercisable  upon  the occurrence of certain defined events related to a
possible  change  of  control  of  the Company. The description and terms of the
Rights  are  set  forth  in  a  Rights Agreement, dated as of March 22, 1996, as
amended,  between  the Company and American Stock Transfer and Trust Company, as
Rights  Agent.  The  Rights  Agreement  may be amended by the Company's board of
directors  without  the approval of the Rights holders, at any time prior to the
Rights  becoming  exercisable. The Rights Agreement was amended in March 2000 to
specify  that the recapitalization transaction initiated in March 2000 would not
cause  the  Rights  to  become  exercisable.


                                       17
<PAGE>
ITEM  6.  SELECTED  FINANCIAL  DATA
-----------------------------------

The  selected financial data in the following table was derived from the audited
consolidated  financial  statements  of the Company. This data should be read in
conjunction  with  such consolidated financial statements and notes thereto, and
Management's  Discussion  and  Analysis  of  Financial  Condition and Results of
Operations.

<TABLE>
<CAPTION>
                                                                      YEARS  ENDED  DECEMBER  31,
                                                        --------------------------------------------------
STATEMENT OF OPERATIONS DATA                              2001      2000       1999       1998       1997
                                                        --------  ---------  ---------  ---------  --------
<S>                                                     <C>       <C>        <C>        <C>        <C>

  (IN THOUSANDS, EXCEPT PER SHARE DATA):
Premium revenue, net                                    $84,822   $ 97,251   $ 96,225   $ 97,449   $95,350

Health care services expense                             58,692     68,568     69,528     66,020    65,702
Selling, general and administrative expense              25,391     31,203     35,072     36,259    25,103
Loss on impairment of assets (1)                             --        450     24,576      2,397        --
                                                        --------  ---------  ---------  ---------  --------
  Operating income (loss)                                   739     (2,970)   (32,951)    (7,227)    4,545
Investment and other income                               1,060      1,431      2,067        624     1,316
Interest expense                                           (504)    (4,913)    (5,855)    (4,311)   (2,871)
                                                        --------  ---------  ---------  ---------  --------
Income (loss) before income taxes, discontinued
  operations and extraordinary item                       1,295     (6,452)   (36,739)   (10,914)    2,990
Income tax expense (benefit) (2)                             --         --     10,934     (3,406)    1,371
                                                        --------  ---------  ---------  ---------  --------
Income (loss) before discontinued
  operations and extraordinary item                       1,295     (6,452)   (47,673)    (7,508)    1,619
Discontinued operations:
  Loss from assets transferred under contractual
    arrangements (3)                                         --     (2,500)    (4,363)        --        --
  Loss from operations to be disposed of (4)                 --         --         --     (2,430)   (7,408)
  Gain on sale of general dental practices                   --         --         --         --       296
Extraordinary item: Conversion of
  debt to convertible preferred stock (5)                11,251         --         --         --        --
                                                        --------  ---------  ---------  ---------  --------

  Net income (loss)                                     $12,546   $ (8,952)  $(52,036)  $ (9,938)  $(5,493)
                                                        ========  =========  =========  =========  ========

Basic net income (loss) per share:
  Income (loss) before discontinued
    operations and extraordinary item                   $  0.04   $  (1.36)  $ (10.04)  $  (1.58)  $  0.34
  Loss from discontinued operations                          --      (0.53)     (0.92)     (0.51)    (1.50)
  Extraordinary item                                       0.35         --         --         --        --
                                                        --------  ---------  ---------  ---------  --------

    Net income (loss) per basic share                   $  0.39   $  (1.89)  $ (10.96)  $  (2.09)  $ (1.16)
                                                        ========  =========  =========  =========  ========

  Weighted average basic shares outstanding (6)          32,253      4,747      4,747      4,747     4,723

Diluted net income (loss) per share:
  Income (loss) before discontinued
    operations and extraordinary item                   $  0.04   $  (1.36)  $ (10.04)  $  (1.58)  $  0.33
  Loss from discontinued operations                          --      (0.53)     (0.92)     (0.51)    (1.45)
  Extraordinary item                                       0.34         --         --         --        --
                                                        --------  ---------  ---------  ---------  --------

  Net income (loss) per diluted share                   $  0.38   $  (1.89)  $ (10.96)  $  (2.09)  $ (1.12)
                                                        ========  =========  =========  =========  ========

  Weighted average diluted shares outstanding            33,009      4,747      4,747      4,747     4,899

BALANCE SHEET DATA, AS OF DECEMBER 31 (IN THOUSANDS):

Cash and short-term investments                         $15,453   $ 16,702   $  6,281   $  4,935   $12,906
Current assets                                           19,195     21,268     10,380     13,411    25,800
Total assets                                             29,325     33,095     28,577     78,749    84,085
Current liabilities (5)                                  14,988     72,180     18,129     25,314    20,193
Long-term debt                                               --        265     39,545     32,500    33,894
Stockholders' equity (deficit)                           13,366    (40,429)   (31,614)    19,766    29,615
</TABLE>

                  See note explanations on the following page.


                                       18
<PAGE>
NOTE  EXPLANATIONS  TO  SELECTED  FINANCIAL  DATA:

(1)  Represents  reductions  in  the carrying value of notes receivable in 2000,
     intangible assets in 1999, and notes receivable and real estate in 1998, to
     their  estimated  realizable  values.  See  Note  5  to  the  accompanying
     consolidated  financial  statements.
(2)  The  1999  amount  primarily  represents  a charge to establish a valuation
     allowance  against  net deferred tax assets. See Note 9 to the accompanying
     consolidated  financial  statements.
(3)  Represents  reductions  in  the carrying value of the net assets related to
     the  dental  practices  sold to the Purchaser to their estimated realizable
     value.  See  Note  5 to the accompanying consolidated financial statements.
(4)  Represents operating losses related to discontinued operations prior to the
     date  they  were sold, and subsequent expenses related to those operations.
     See  Note  2  to  the  accompanying  consolidated  financial  statements.
(5)  Effective  January  31, 2001, the Company completed the conversion of $47.5
     million  of  debt  and  $5.3  million  of  accrued interest (which includes
     $321,000  of  interest  incurred  in  January  2001) into 300,000 shares of
     convertible  preferred  stock,  resulting in an extraordinary gain of $11.3
     million,  net  of  transaction  expenses.
(6)  Includes  the  common share equivalents of the convertible preferred stock,
     because the Company believes the convertible preferred stock is essentially
     equivalent to common stock, based on all the rights and preferences of both
     types  of  stock.

ITEM 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
--------------------------------------------------------------------------------
OF  OPERATIONS
--------------

SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995

The  Private  Securities  Litigation Reform Act of 1995 provides a "safe harbor"
for  forward-looking  statements,  as long as those statements are identified as
forward-looking  and  are  accompanied  by  meaningful  cautionary  statements
identifying  important  factors  that  could  cause  actual  results  to  differ
materially  from  those discussed in the statements. The Company desires to take
advantage of these safe harbor provisions. The information in the "Risk Factors"
section  of  Item  1  of  this Form 10-K should be read in conjunction with this
Management's  Discussion  and  Analysis  of  Financial  Condition and Results of
Operations  ("MD&A").

The statements contained in this MD&A concerning expected growth, the outcome of
business  strategies,  future operating results and financial position, economic
and  market  events  and  trends,  future  premium  revenue,  future health care
expenses,  the  Company's  ability  to control health care, selling, general and
administrative expenses, and all other statements that are not historical facts,
are  forward-looking  statements.  Words such as expects, projects, anticipates,
intends,  plans,  believes,  seeks or estimates, or variations of such words and
similar  expressions,  are also intended to identify forward-looking statements.
These forward-looking statements are subject to significant risks, uncertainties
and  contingencies,  many of which are beyond the control of the Company. Actual
results  may  differ  materially  from  those  projected  in the forward-looking
statements,  which  statements  involve  risks  and  uncertainties.

All of the risks set forth in the "Risk Factors" section of this Form 10-K could
negatively  impact  the  earnings  of  the  Company in the future. The Company's
expectations  for the future are based on current information and its evaluation
of  external  influences.  Changes in any one factor could materially impact the
Company's expectations related to revenue, premium rates, benefit plans offered,
membership  enrollment,  the  amount  of  health  care  expenses  incurred,  and
profitability, and therefore, affect the forward-looking statements which may be
included  in  this  report.  In  addition,  past  financial  performance  is not
necessarily  a  reliable indicator of future performance. An investor should not
use  historical  performance alone to anticipate future results or future period
trends  for  the  Company.

SIGNIFICANT  ACCOUNTING  POLICIES

The  Company's consolidated financial statements are prepared in accordance with
accounting  principles  generally  accepted  in  the  United  States of America.
Application  of  those  accounting  principles includes the use of estimates and
assumptions  that  have  been  made  by  the  management,  and which the Company
believes  are reasonable based on the information available. These estimates and
assumptions  affect  the  reported  amounts of assets, liabilities, revenues and
expenses  in  the  accompanying  consolidated  financial statements. The Company
believes  the  most  significant  accounting  policies  used  to  prepare  the
accompanying  consolidated  financial  statements  are  the  following:


                                       19
<PAGE>
INVESTMENTS

The  Company  has  classified  all  of  its investments as "available-for-sale."
Accordingly,  investments  are  carried  at  fair  value, based on quoted market
prices,  and  unrealized  gains  and losses, net of applicable income taxes, are
reported  in  a separate caption of stockholders' equity. In the event there was
an  unrealized loss on an investment that the Company believed to be a permanent
loss, the loss would be reported in the statement of operations, instead of in a
separate caption of stockholders' equity. As of December 31, 2001, there were no
unrealized  losses  that  the  Company  believed  to  be  permanent  losses.

ACCOUNTS  RECEIVABLE

Accounts  receivable  represent uncollected premiums related to coverage periods
prior  to  the  balance  sheet date, and are stated at the estimated collectible
amounts,  net  of  an allowance for bad debts. The Company continuously monitors
the  timing  and  amount of its premium collections, and maintains a reserve for
estimated  bad  debt losses. The amount of the reserve is based primarily on the
Company's historical experience and any customer-specific collection issues that
are identified. The Company believes its reserve for bad debt losses is adequate
as of December 31, 2001. However, there can be no assurance that future bad debt
losses  will  not  exceed  the  currently  estimated  bad  debt  losses or those
experienced  by  the  Company  in  the  past.

NOTES  RECEIVABLE

Notes  receivable  are  stated  at  the estimated collectible amounts, net of an
allowance  for  bad  debts.  The Company continuously monitors its collection of
payments on the notes receivable, and maintains a reserve for estimated bad debt
losses. The amount of the reserve is based primarily on the Company's historical
experience  in  collecting  similar  notes  receivable  that  are  no  longer
outstanding,  and any available information about the financial condition of the
note  issuers,  although the Company has access to very little such information.
The  Company believes its reserve for bad debt losses is adequate as of December
31,  2001.  However, there can be no assurance that the Company will realize the
carrying  amount  of  its  notes  receivable.

INTANGIBLE  ASSETS

Intangible  assets  at December 31, 2001 consist entirely of goodwill related to
the  acquisition  of  a  Texas-based  dental  HMO company in 1996. This goodwill
represents  the  excess  of  the purchase price of the acquired company over the
fair  value of the net assets acquired. The Company estimates that this goodwill
has  a  useful  life  of  40  years  from the date of acquisition of the related
entity, and amortized the goodwill over that period during the three years ended
December  31,  2001.  In  accordance  with  SFAS  No.  142,  "Goodwill and Other
Intangible  Assets," the Company's goodwill will not be amortized after December
31, 2001, but will be evaluated for possible impairment on an ongoing basis. See
Note  5  to the accompanying consolidated financial statements for the Company's
policy  for assessing recoverability of goodwill and a discussion of a charge to
earnings  during  1999  for  impairment  of  goodwill.

LIABILITIES  RELATED  TO  SALE  OF  DENTAL  OFFICES

The Company completed the sale of its interest in certain dental and orthodontic
practices  in  October  2000,  as  described  in  Note  2  to  the  accompanying
consolidated  financial  statements.  In  connection  with this transaction, the
Company  agreed  to  pay  certain  obligations related to these practices. These
obligations  consisted  primarily  of  payroll, dental office lease obligations,
patient  refunds,  and the obligation to complete the orthodontic treatments for
dental  HMO  patients  who  previously  paid  for  the treatments in full. These
obligations  had  to  be  paid  in  order  to  complete  the  transaction,  were
obligations  of the Company as the member's dental HMO plan, or were obligations
for  which  the  Company could have been contingently liable in any event. As of
December  31,  2001,  the  Company  has  satisfied  a substantial portion of the
obligations  described  above.  However,  the  ultimate  cost of the obligations
assumed  by  the Company are subject to various uncertainties, and are reflected
on  the  accompanying  consolidated  balance  sheet  based on the Company's best
estimates.


                                       20
<PAGE>
CLAIMS  PAYABLE  AND  CLAIMS  INCURRED  BUT  NOT  REPORTED

The  estimated liability for claims payable and claims incurred but not reported
is  based  primarily  on  the  average  historical  lag time between the date of
service  and  the  date the related claim is paid by the Company, as well as the
recent  trend in the aggregate amount of incurred claims per covered individual.
Since  the  liability for claims payable and claims incurred but not reported is
necessarily  an  actuarial  estimate,  the  amount of claims eventually paid for
services  provided  prior  to  the  balance  sheet  date  could  differ from the
estimated liability, which could have a material adverse effect on the Company's
financial  statements.  Any  such  differences  are included in the consolidated
statement  of operations for the period in which the differences are identified.

INCOME  TAXES

The  Company's  accounting  for income taxes is in accordance with SFAS No. 109,
"Accounting for Income Taxes." SFAS No. 109 requires the recognition of deferred
tax  liabilities  and  assets for the expected future tax consequences of events
that  are  recognized in the Company's financial statements in different periods
than  those in which the events are recognized in the Company's tax returns. The
measurement  of deferred tax liabilities and assets is based on current tax laws
as  of the balance sheet date. The Company records a valuation allowance related
to  deferred  tax assets in the event that available evidence indicates that the
future  tax  benefits  related to the deferred tax assets may not be realized. A
valuation  allowance  is  required  when  it  is  more  likely than not that the
deferred  tax  assets  will  not  be  realized.

The  Company's  net deferred tax assets have been fully reserved since September
30,  1999, due to uncertainty about whether those net assets will be realized in
the future. The uncertainty is primarily due to operating losses incurred by the
Company  during  each  of  the  three  years  ended  December  31, 2000, and the
existence  of  significant  net  operating  loss  carryforwards.  The  Company's
deferred  tax  assets remain fully reserved as of December 31, 2001 for the same
reasons.

The  Company  had  a  net  loss for tax purposes for the year ended December 31,
2001, and its net deferred tax assets remain fully reserved, as discussed above.
Accordingly,  the  Company  recorded  no  income  tax expense for the year ended
December  31,  2001.

INCOME  (LOSS)  PER  SHARE

Income  (loss) per share is presented in accordance with SFAS No. 128, "Earnings
Per  Share."  Basic  earnings  (loss) per share is based on the weighted average
common  shares  outstanding,  including  the  common  shares  into  which  the
convertible  preferred  stock  is convertible, but excluding the effect of other
potentially  dilutive  securities. The number of basic common shares outstanding
includes  the  common  share  equivalents  of  the  convertible preferred stock,
because  the  Company  believes  the  convertible preferred stock is essentially
equivalent  to  common  stock,  based  on all the rights and preferences of both
types  of  stock.


                                       21
<PAGE>
SUMMARY  OF  RESULTS  OF  OPERATIONS

The following table shows the Company's results of operations as a percentage of
revenue,  and  is  used  in  the  year-to-year  comparisons  discussed  below.

<TABLE>
<CAPTION>
                                                  YEARS ENDED DECEMBER 31,
                                                  -----------------------
                                                   2001    2000    1999
                                                  ------  ------  -------
<S>                                               <C>     <C>     <C>
Premium revenue, net                              100.0%  100.0%   100.0%

Health care services expense                       69.2    70.5     72.3
Selling, general and administrative expense        29.9    32.1     36.4
Loss on impairment of assets                         --     0.5     25.5
                                                  ------  ------  -------

Operating income (loss)                             0.9    (3.1)   (34.2)

Investment and other income                         1.2     1.5      2.1
Interest expense                                   (0.6)   (5.0)    (6.1)
                                                  ------  ------  -------
Income (loss) before income taxes, discontinued
  operations and extraordinary item                 1.5    (6.6)   (38.2)
Income tax expense (benefit)                         --      --     11.4
                                                  ------  ------  -------
Income (loss) before discontinued
  operations and extraordinary item                 1.5    (6.6)   (49.6)
Loss from discontinued operations                    --    (2.6)    (4.5)
Extraordinary item                                 13.3      --       --
                                                  ------  ------  -------

Net income (loss)                                  14.8%  (9.2)%  (54.1)%
                                                  ======  ======  =======
</TABLE>

2001  COMPARED  TO  2000

Premium revenue decreased by $12.4 million, or 12.8%, from $97.3 million in 2000
to  $84.8 million in 2001. The average membership for which the Company provided
dental  coverage  decreased  by  approximately  190,000  members, or 23.6%, from
805,000  members during 2000 to 615,000 during 2001. The decrease in the average
number  of  members is primarily due to the loss of a number of customers during
2000  and  at  the  beginning  of  2001.  The Company believes the loss of these
customers  was  primarily  due to the Company's poor financial condition in late
1999  and  early  2000,  large premium increases necessary for clients with high
loss  ratios,  and  customer  service problems during 1999 and 2000. The Company
believes  it  significantly  improved  its financial condition by completing the
recapitalization transaction that was initiated in March 2000 (see Liquidity and
Capital  Resources below), and by implementing various cost reduction strategies
during  2000  and  2001.  The  Company  also  implemented  various  operational
improvements  during  2000  and  2001,  which it believes addressed and improved
customer  service. As a result, the Company believes its financial condition and
level  of  customer  service are no longer significant factors in its ability to
retain  its  existing  customers  or  to generate new customers. Premium revenue
decreased  by only 12.8% even though average membership decreased by 23.6%. This
was primarily due to increases in premium rates, and a shift in the type of plan
designs  toward  preferred  provider  ("PPO")/indemnity plan designs, which have
higher  premium  rates than HMO plan designs. Substantially all of the Company's
premium  revenue was derived from dental benefit plans in 2001 and 2000. Premium
revenue from vision benefit plans and other products was not material in 2001 or
2000.

Health  care  services  expense  decreased by $9.9 million, or 14.4%, from $68.6
million  in  2000  to  $58.7  million in 2001. Health care services expense as a
percentage of premium revenue (the "loss ratio") decreased from 70.5% in 2000 to
69.2%  in  2001. This decrease is primarily due to an increase in premium rates,
and  a reduction in certain types of non-standard payment arrangements to dental
HMO  providers.  Those  non-standard payment arrangements consisted primarily of
discounted  fee-for-service  arrangements for dental services that are typically
delivered  through  capitation  arrangements,  and  minimum  monthly  capitation
payments,  regardless  of  the number of members enrolled with the provider. The
Company  reduced  its  expenses  related  to  these non-standard arrangements by
either  negotiating  a  different arrangement with the providers, or terminating
the  arrangements  and  contracting  with  other  providers.  These factors were


                                       22
<PAGE>
partially  offset  by  a  shift in the type of plan designs toward PPO/indemnity
plan  designs,  which  have  a higher loss ratio than HMO plan designs. However,
PPO/indemnity  plan  designs  also have a higher amount of gross margin (premium
revenue  less  health  care  services  expense)  per insured individual, and the
Company  believes  they  have  significantly  lower  general  and administrative
expenses  than  HMO  plan  designs,  as  a  percentage  of  premium  revenue.

Selling, general and administrative ("SG&A") expenses decreased by $5.8 million,
or  18.6%, from $31.2 million in 2000 to $25.4 million in 2001. SG&A expenses as
a  percentage  of premium revenue decreased from 32.1% in 2000 to 29.9% in 2001.
The  decrease in SG&A expenses as a percentage of premium revenue is due to cost
reductions  implemented  in  several  categories,  including  equipment  rent,
depreciation  expense,  telecommunications, property rent, and others. A portion
of  the  decrease  in  SG&A  expenses is due to decreases in broker commissions,
internal  commissions,  and  premium  taxes,  which are all related to the 12.8%
decrease  in  premium  revenue  in  2001.

Loss  on  impairment  of assets decreased from $450,000 in 2000 to zero in 2001.
The  loss  on impairment in 2000 is due to an increase in the reserve related to
notes  receivable,  as  discussed  in  Note  5  to the accompanying consolidated
financial  statements.

Investment  and  other  income  decreased  by  $0.4 million, or 25.9%, from $1.4
million  in  2000  to  $1.1 million in 2001. This decrease is primarily due to a
decrease  in  interest income from notes receivable, due to the liquidation of a
majority  of the Company's notes receivable during the past year, and a decrease
in  interest  rates  on  fixed  income investments. These factors were partially
offset  by  realized  gains  on  the sale of investments in the first quarter of
2001.

Total interest expense decreased by $4.4 million, or 89.7%, from $4.9 million in
2000  to  $0.5  million  in  2001.  This  decrease  is  primarily  due  to  the
recapitalization  transaction  that  was  completed  effective January 31, 2001,
which converted substantially all of the Company's debt to convertible preferred
stock. See Note 7 to the accompanying consolidated financial statements for more
information  on  this  transaction.

The income (loss) before income taxes, discontinued operations and extraordinary
item  improved from a loss of $6.5 million, or 6.6% of premium revenue, in 2000,
to income of $1.3 million, or 1.5% of premium revenue, in 2001. This improvement
was primarily due to a $4.4 million decrease in interest expense, a $5.8 million
decrease  in  SG&A expenses, and a decrease in the loss ratio from 70.5% in 2000
to  69.2%  in  2001,  which  is  equal to a $1.1 million decrease in health care
services  expense.

There  was no income tax expense in 2001, and no income tax benefit in 2000. The
Company  had  no current income tax expense in 2001 due to temporary differences
between  income  before  income taxes for accounting purposes and taxable income
for  tax purposes, which resulted in a net loss for tax purposes. There was also
no  deferred  income  tax  expense  or  benefit  in  2001,  due to the valuation
allowance  against the Company's net deferred tax assets, as discussed in Note 9
to  the  accompanying consolidated financial statements. There was no income tax
benefit  in  2000  because  the  Company  had previously used its loss carryback
opportunities,  and  because of the valuation allowance against its net deferred
tax  assets.

The  loss  from  discontinued  operations decreased from $2.5 million in 2000 to
zero  in  2001. The loss in 2000 represents a reduction in the carrying value of
the  net  assets  related to certain dental and orthodontic practices, which the
Company  originally  sold  to  an unrelated party in 1997 and 1998. These assets
were  resold  to another unrelated party in October 2000, as discussed in Note 2
to  the  accompanying  consolidated  financial  statements.

There was an $11.3 million extraordinary gain on the conversion of the Company's
debt  to  convertible  preferred  stock  in 2001. See Note 7 to the accompanying
consolidated financial statements for more discussion of the extraordinary gain.

2000  COMPARED  TO  1999

Premium  revenue  increased by $1.0 million, or 1.1%, from $96.2 million in 1999
to  $97.3 million in 2000. The average membership for which the Company provided
dental coverage decreased by approximately 78,000 members, or 8.8%, from 883,000
members  during  1999 to 805,000 during 2000. The decrease in the average number
of  members  is  primarily  due  to  the  loss of several customers during 2000.
Premium  revenue  increased  by 1.1% even though average membership decreased by
8.8%.  This  was primarily due to increases in premium rates, and a shift in the


                                       23
<PAGE>
type  of  plan  designs  toward  PPO/indemnity  plan  designs, which have higher
premium  rates  than  HMO plan designs, and HMO plan designs with higher benefit
levels  and  higher  premium  rates.  Substantially all of the Company's premium
revenue  was derived from dental benefit plans in 2000 and 1999. Premium revenue
from  vision  benefit plans and other products was not material in 2000 or 1999.

Health  care  services  expense  decreased  by $0.9 million, or 1.4%, from $69.5
million in 1999 to $68.6 million in 2000. The loss ratio decreased from 72.3% in
1999  to 70.5% in 2000. This decrease is primarily due to a decrease in the loss
ratio  in the dental benefit plans with HMO plan designs, which is primarily due
to  a  reduction in certain types of non-standard payment arrangements to dental
HMO  providers  during the first quarter of 2000. The decrease in the loss ratio
related  to HMO plan designs was partially offset by a shift in the type of plan
designs  toward  PPO/indemnity plan designs, which have a higher loss ratio than
HMO  plan designs. However, PPO/indemnity plan designs also have a higher amount
of  gross margin (premium revenue less health care services expense) per insured
individual,  and  the Company believes they have significantly lower general and
administrative  expenses  than  HMO  plan  designs,  as  a percentage of premium
revenue.

SG&A expenses decreased by $3.9 million, or 11.0%, from $35.1 million in 1999 to
$31.2  million  in  2000.  SG&A  expenses  as  a  percentage  of premium revenue
decreased  from 36.4% in 1999 to 32.1% in 2000. The decrease in SG&A expenses is
primarily due to the following reasons. Salaries and benefits decreased due to a
reduction  in  the  number  of  employees  during  the first quarter of 2000, in
connection  with a consolidation of the Company's administrative services into a
single  location.  The  decrease is also partially due to a decrease in computer
programming  expenses,  as the Company has completed several enhancements to its
proprietary management information system that were in process during 1999. Part
of  the  decrease  is  due  to  a  decrease  in  amortization expense related to
intangible  assets.  During  the  third  quarter of 1999, the Company recorded a
$24.6  million  impairment  loss to reduce the carrying values of its intangible
assets  to  their  estimated  realizable  values,  which  caused  a  decrease in
amortization  expense  in  2000.

Loss on impairment of assets decreased from $24.6 million in 1999 to $450,000 in
2000.  The  loss  on  impairment  in 1999 is primarily due to a reduction in the
carrying  value  of  the  goodwill  and  non-compete  covenants  related  to the
acquisition  of a Texas-based dental HMO company in 1996, and the acquisition of
a  Florida-based  dental  HMO company in 1997. The amount of the impairment loss
was determined in accordance with Accounting Principles Board Opinion No. 17, as
discussed  in  Note 5 to the accompanying consolidated financial statements. The
loss on impairment in 2000 is due to an increase in the reserve related to notes
receivable,  as  discussed  in Note 5 to the accompanying consolidated financial
statements.

Investment  and  other  income  decreased  by  $0.6 million, or 30.8%, from $2.0
million  in 1999 to $1.4 million in 2000. This decrease was primarily due to net
realized  gains  on the sale of investments of $1.2 million in 1999, compared to
nearly zero in 2000. This was partially offset by an increase in interest income
in  2000,  primarily  due  to  investment  of  the  proceeds of the $8.0 million
borrowing  on  March  1,  2000,  as  discussed  in  Note  7  to the accompanying
consolidated  financial  statements.

Total interest expense decreased by $1.0 million, or 16.1%, from $5.9 million in
1999  to $4.9 million in 2000. This decrease is primarily due to $1.9 million of
deferred  loan costs that were charged to expense during 1999. This decrease was
partially  offset by interest expense and amortization of deferred loan costs in
2000,  related  to  the $8.0 million borrowing on March 1, 2000, as discussed in
Note  7  to  the  accompanying  consolidated  financial  statements.

The  loss  before  income taxes and discontinued operations decreased from $36.7
million,  or  38.2%  of  premium  revenue,  in 1999, to $6.5 million, or 6.6% of
premium revenue, in 2000. This decrease in the loss was primarily due to a $24.6
million  loss  on  impairment of assets in 1999, a $3.9 million decrease in SG&A
expenses,  and a decrease in the loss ratio from 72.3% in 1999 to 70.5% in 2000,
which  is  equal  to  a  $1.8  million decrease in health care services expense.

Income  tax expense decreased from $10.9 million in 1999 to zero in 2000. Income
tax  expense  in  1999  primarily represents a charge to earnings to establish a
deferred  tax  asset valuation allowance that was equal to the entire balance of
the  Company's  net  deferred  tax  assets.  The  Company recorded no income tax
expense  or  benefit in 2000 due to the valuation allowance against its deferred
tax  assets.  This  valuation allowance was established due to uncertainty about
whether the deferred tax assets will be realized in the future, primarily due to
operating  losses  incurred  by  the  Company  in  1998,  1999  and 2000 and the


                                       24
<PAGE>
existence  of  significant  net operating loss carry-forwards. See Note 9 to the
accompanying  consolidated  financial  statements  for  more  information.

The  loss  from  discontinued  operations decreased from $4.4 million in 1999 to
$2.5  million  in 2000. The losses in both 1999 and 2000 represent reductions in
the  carrying  value of the net assets related to certain dental and orthodontic
practices,  which  the Company originally sold to an unrelated party in 1997 and
1998.  These  assets  were resold to another unrelated party in October 2000, as
discussed  in  Note  2  to  the  accompanying consolidated financial statements.

LIQUIDITY  AND  CAPITAL  RESOURCES

The  Company's  net  working  capital improved from negative $50.9 million as of
December  31,  2000, to positive $4.2 million as of December 31, 2001, primarily
due  to  the  conversion  of  $52.5  million  of  debt and accrued interest into
convertible  preferred stock, as discussed below. Excluding the obligations that
were  converted to equity, the Company's net working capital increased from $1.6
million  as  of December 31, 2000, to $4.2 million as of December 31, 2001. This
improvement  is  primarily due to $3.1 million of income before depreciation and
amortization,  and before the extraordinary item, during the year ended December
31,  2001.

Net  cash  used  by operating activities was $1.4 million in 2001, which was the
result  of  $3.5  million  of  net  cash provided by net income, as adjusted for
non-cash  items, as reflected on the accompanying consolidated statement of cash
flows,  which  was  partially  offset  by  net  cash  used  to  reduce  certain
liabilities. In contrast, net cash used by operating activities in 2000 was also
$1.4  million,  but  this was the result of $2.6 million of net cash used by the
net  loss  in  2000,  as  adjusted  for  non-cash  items,  as  reflected  on the
accompanying consolidated statement of cash flows, which was partially offset by
net  cash  provided by increases in certain liabilities. The $3.5 million of net
cash  provided by net income in 2001 was more than offset by $2.0 million of net
cash used to reduce accrued expenses, $1.6 million used to reduce claims payable
and  claims  incurred but not reported ("IBNR"), and $0.8 million used to reduce
accounts payable. The significant improvement in the Company's operating results
is  discussed  above  under  Results  of  Operations.

The  reduction in accrued expenses in 2001 was primarily due to payments made to
reduce  the obligations assumed in connection with the re-sale of certain dental
practices,  as  discussed  in  Note 2 to the accompanying consolidated financial
statements. The reduction was also partially due to decreases in accrued premium
taxes,  accrued  provider  fees, and accruals for outside services, all of which
are  due to normal variations in the timing of payments. The reduction in claims
payable  and  claims  IBNR  during  2001  was primarily due to a decrease in the
Company's  enrollment.  The  reduction in accounts payable in 2001 was primarily
due  to  normal  variations  in  the  timing  of  disbursements  by the Company.

Net cash provided by investing activities was $1.5 million during 2001, compared
to  $10.1 million of net cash used by investing activities in 2000. The net cash
provided  in  2001  consisted  primarily  of  the  proceeds from $1.3 million of
payments  received  on  notes  receivable,  which  resulted  from  the Company's
liquidation of its notes receivable in order to reduce collection risks. The net
cash  used  in 2000 consisted primarily of the purchase of investments using the
proceeds from the $8.0 million loan in March 2000. There was no significant cash
provided  by financing activities in 2001, compared to $11.3 million provided in
2000.  The net cash provided by financing activities in 2000 consisted primarily
of  the  proceeds  from the $8.0 million loan in March 2000, and the increase in
accrued  interest  that was converted to convertible preferred stock in 2001, as
discussed  below.

The  Company's  total short-term and long-term debt decreased from $48.0 million
at  December  31,  2000,  to $265,000 at December 31, 2001, primarily due to the
conversion  of  $47.5 million of debt into convertible preferred stock effective
January  31,  2001.  See  Note  7  to  the  accompanying  consolidated financial
statements  for  information  on  the  conversion  of  substantially  all of the
Company's  debt  into  convertible  preferred  stock.


                                       25
<PAGE>
<TABLE>
<CAPTION>

A  summary  of  the  Company's  future commitments is as follows (in thousands):


                                          DUE IN   DUE IN   DUE 2004       DUE
                                           2002     2003     TO 2006   THEREAFTER    TOTAL
                                          -------  -------  ---------  -----------  -------
<S>                                       <C>      <C>      <C>        <C>          <C>
  CONTRACTUAL OBLIGATIONS:
  Debt                                    $   265  $    --  $      --  $        --  $   265
  Other long-term liabilities                  --      199        592          180      971
  Operating lease commitments, net          2,552    2,025      5,679        3,064   13,320
                                          -------  -------  ---------  -----------  -------

    Total contractual obligations         $ 2,817  $ 2,224  $   6,271  $     3,244  $14,556
                                          =======  =======  =========  ===========  =======
  OTHER COMMITMENTS:
  Contingent liability for dental office
    leases assigned to other entities     $ 1,418  $ 1,280  $   1,679  $        24  $ 4,401
  Contingent liability for subleased
    office space                              278      130         43           --      451
                                          -------  -------  ---------  -----------  -------

    Total other commitments               $ 1,696  $ 1,410  $   1,722  $        24  $ 4,852
                                          =======  =======  =========  ===========  =======
</TABLE>

If  the  entities  to  which the dental office leases have been assigned fail to
make  a  significant  amount  of  the lease payments, this could have a material
adverse  affect  on  the  Company.  See  Note 8 to the accompanying consolidated
financial  statements  for  more information on other long-term liabilities, and
see  Note  10 for more information on operating lease commitments and contingent
lease  obligations.

The  Company's  primary  source  of  funds  is  cash  flows  from operations and
investment  income.  The  Company  believes  that cash flows from operations and
investment  income  will be adequate to meet the Company's cash requirements for
at  least  the  next twelve months, except for financing that may be required to
complete  potential  acquisitions.  The  Company does not expect any significant
changes in its cash requirements in the foreseeable future, except in connection
with  potential  acquisitions.  The  Company  believes it has adequate financial
resources  to  continue  its  current  operations  for  the  foreseeable future.
However, there can be no assurance that there will not be unforeseen events that
could have a material adverse impact on the Company's financial position and the
adequacy  of  its  cash  balances.

RECENT  ACCOUNTING  PRONOUNCEMENTS

See  Note  1  to  the  accompanying  consolidated  financial  statements  for  a
discussion  of  recent  accounting  pronouncements.

IMPACT  OF  INFLATION

The Company's operations are potentially impacted by inflation, which can affect
premium  rates,  health  care  services  expense,  and  selling,  general  and
administrative  expenses.  The  Company  expects  that  its  earnings  will  be
positively  impacted  by  inflation  in premium rates, because premium rates for
dental  benefit plans in general have been increasing due to inflation in recent
years.  The  Company  expects  that  its earnings will be negatively impacted by
inflation  in  health  care  costs,  because  fees charged by dentists and other
dental  providers  have  been  increasing  due to inflation in recent years. The
impact  of  inflation  on the Company's health care expenses is mitigated in the
short-term  by  the  fact  that  approximately 35% of total health care services
expense  consists of capitation (fixed) payments to providers. In addition, most
of  the  Company's  selling, general and administrative expenses are impacted by
general  inflation  in  the  economy.

ITEM  7A.  QUANTITATIVE  AND  QUALITATIVE  DISCLOSURES  ABOUT  MARKET  RISK
---------------------------------------------------------------------------

The  Company is subject to risk related to changes in short-term interest rates,
due  to its investments in interest-bearing securities. As of December 31, 2001,
the  Company's  total investments were approximately $16.8 million. Therefore, a
one  percentage-point  change in short-term interest rates would have a $168,000
impact  on the Company's annual investment income. The Company is not subject to
a material amount of risk related to changes in foreign currency exchange rates.


                                       26
<PAGE>
ITEM  8.  FINANCIAL  STATEMENTS  AND  SUPPLEMENTARY  DATA
---------------------------------------------------------

The  Consolidated  Financial  Statements  and  the  related  Notes and Schedules
thereto  filed as part of this 2001 Annual Report on Form 10-K are listed on the
accompanying  Index  to  Financial  Statements  on  page  F-1.

ITEM  9. CHANGES IN AND DISAGREEMENTS WITH INDEPENDENT ACCOUNTANTS ON ACCOUNTING
--------------------------------------------------------------------------------
AND  FINANCIAL  DISCLOSURE
--------------------------

During  the  two  most  recent  fiscal  years, there have been no changes in the
Company's independent auditors or disagreements with such auditors on accounting
principles  or  financial  statement  disclosures.

                                    PART III

ITEM  10.  DIRECTORS  AND  EXECUTIVE  OFFICERS  OF  THE  REGISTRANT
-------------------------------------------------------------------

The  current  directors  and  executive  officers of the Company are as follows:

<TABLE>
<CAPTION>
            NAME             AGE                          POSITION
--------------------------  ----  ------------------------------------------------------------------
<S>                         <C>   <C>
James E. Buncher              65  President, Chief Executive Officer and Director
Stephen J. Baker              44  Executive Vice President and Chief Operating Officer
Ronald I. Brendzel, JD        52  Senior Vice President, General Counsel, Secretary and Director
Dennis L. Gates, CPA          46  Senior Vice President, Chief Financial Officer and Director
Kenneth E. Keating            38  Vice President, Marketing and Chief Marketing Officer
Barbara Lucci                 42  Vice President, Service Center Operations
John F. Steen                 47  Vice President, Development and Chief Development Officer
Mik L. Summers                43  Vice President, Information Services and Chief Information Officer
Michael B. Sutherland, DDS    55  Vice President, Provider Relations and Dental Director
Steven J. Baileys, DDS        48  Chairman of the Board of Directors
Jack R. Anderson              77  Director (1)
Stephen J. Blewitt            42  Director (1)
Leslie B. Daniels             54  Director (1)
<FN>
___________________

     (1)  Member,  Compensation and Stock Option Committee, and Audit Committee.
</TABLE>

Mr.  Buncher,  Mr.  Anderson  and Mr. Daniels became directors of the Company on
March  1,  2000,  in  connection  with the recapitalization transaction that was
initiated  on March 1, 2000 (see Recent Developments for more discussion of this
transaction).  Mr. Blewitt became a director of the Company on February 8, 2001,
in  connection  with  the  completion  of  the recapitalization transaction. All
directors  of the Company are elected annually. Officers of the Company serve at
the  pleasure  of  the  board  of  directors,  subject  to  certain contracts of
employment.  See  Item  11.  - Executive Compensation below for a description of
employment  agreements  with  certain  executive  officers.

Mr.  Buncher  has  been President and Chief Executive Officer, and a director of
the Company, since March 2000. From July 1998 to February 2000, he was a private
investor.  Mr.  Buncher  was  President and Chief Executive Officer of Community
Dental  Services,  Inc., a corporation operating dental practices in California,
from  October  1997  until  July  1998.  Mr. Buncher was President of the Health
Plans  Group  of  Value Health, Inc., a national specialty managed care company,
from  September  1995  to  September  1997. He served as Chairman, President and
Chief  Executive  Officer  of  Community  Care  Network,  Inc.,  a  Value Health
subsidiary,  from  August 1992 to September 1997, when Value Health was acquired
by  a third party and Mr. Buncher resigned his positions with that company.  Mr.
Buncher currently serves on the board of directors of Horizon Health Corporation
and  two  other  non-public  health  care  companies.

Mr.  Baker  has  been Executive Vice President and Chief Operating Officer since
April  2001,  when he joined the Company. Prior to joining the Company, he was a
consultant  to the senior management of the Company from September 2000 to March
2001.  Mr.  Baker  was  Vice  President,  Chief  Operating  Officer  and  Chief


                                       27
<PAGE>
Information  Officer  for  Novaeon,  Inc.,  a  national  health  and  disability
management  company,  from September 1999 to August 2000.  He was an independent
management  consultant  from  September 1997 to August 1999.  Mr. Baker was Vice
President,  Developing  Businesses  for  Community  Care  Network, Inc., a group
health  and  workers'  compensation  managed  care  company from January 1997 to
August  1997.

Mr.  Brendzel  has  been Senior Vice President, General Counsel, Secretary and a
director  of the Company since 1989. He joined the Company in 1978 and was Chief
Financial  Officer  from  April  1988  to  May 1996. Mr. Brendzel is licensed to
practice  law  in the state of California. Mr. Brendzel is the brother-in-law of
Dr.  Baileys.

Mr.  Gates  has  been  Senior  Vice  President and Chief Financial Officer since
November  1999,  when  he  joined  the  Company,  and has been a director of the
Company  since  March  2000.  From  June  1995  to  February  1999, he was Chief
Financial  Officer,  then  Treasurer,  of Sheridan Healthcare, Inc., a physician
practice  management  company.

Mr. Keating has been Vice President, Marketing and Chief Marketing Officer since
May  2001, and was Vice President, Sales and Marketing from February 2000 to May
2001.  He  was  Western Regional Vice President of the Company from October 1997
to  February 2000. He joined the Company in 1995 and was Vice President-Imprimis
and  Guards  Office  Operations  for the Company from October 1995 until October
1997.

Ms.  Lucci  has  been Vice President, Service Center Operations since June 2001,
and  was  Vice President, Corporate Services from February 2000 to May 2001. She
joined  the  Company  in  1994  and served as Director of Corporate Services and
Human  Resources  from  January  1996  to  February  2000.

Mr.  Steen  has  been  Vice President, Development and Chief Development Officer
since  May 2001, and was Vice President, Development and Provider Relations from
November  2000, when he joined the Company, to May 2001. He served as President,
Chief  Executive  Officer and a director of American Home Services from May 1998
to  November  2000. From January 1995 to May 1998, Mr. Steen served as President
and  Chief  Executive  Officer  of  Caregivers  Home  Health,  Inc.

Mr.  Summers  has  been Vice President, Information Services since May 2001, and
has been Chief Information Officer since November 2000. He served as Director of
Information  Services  from July 1999 to November 2000. From November 1998, when
he  joined  the  Company,  to  July  1999,  Mr.  Summers  served  as  Database
Administrator  and  Director  of Computer Operations. From April 1994 to October
1998,  he served as Manager of Application Implementation with the U.S. Treasury
Department.

Dr.  Sutherland has been Vice President, Provider Relations since July 2001, and
has  been  Vice President and Dental Director since May 2000, when he joined the
Company.  He served as Vice President of Clinical Operations and Dental Director
of  Community Dental Services, Inc., a corporation operating dental practices in
California, from February 1997 to March 2000.  Dr. Sutherland owned and operated
a  number  of dental practices from 1980 to 1997.  Dr. Sutherland is licensed to
practice  dentistry  in  the  state  of  California.

Dr. Baileys has been Chairman of the Board of Directors since September 1995. He
joined  the  Company in 1975 and served as President of the Company from 1981 to
March  1997,  and  Chief  Executive  Officer from May 1995 to February 2000. Dr.
Baileys  is  licensed  to  practice  dentistry  in  the state of California. Dr.
Baileys  currently  serves  on the board of directors of SunLink Health Systems,
Inc.

Mr.  Anderson has been President of Calver Corporation, a health care consulting
and investment firm, and a private investor, since 1982.  Mr. Anderson currently
serves  on  the  board  of  directors  of  Horizon  Health  Corporation.

Mr.  Blewitt is a Senior Managing Director in the Bond & Corporate Finance Group
of  John  Hancock  Life  Insurance Company and has been employed by John Hancock
since  1982.  Mr.  Blewitt  is  also  President  &  Portfolio Manager of Hancock
Mezzanine  Investments  LLC,  the General Partner of Hancock Mezzanine Partners,
L.P., a fund that invests primarily in mezzanine debt securities. Mr. Blewitt is
currently  a  director of John Hancock Capital Growth Management, Inc., Learning
Curve  International,  NSP  Holdings  L.L.C.,  and  Medical  Resources,  Inc.

Mr.  Daniels was a founder of CAI Advisors & Co., an investment management firm,
in  1989 and has been a principal of that entity and its related investment fund
vehicles  since  then.  Mr.  Daniels  is  currently a director of Pharmakinetics


                                       28
<PAGE>
Laboratories, Inc. and Mylan Laboratories, Inc. He was a past Chairman of Zenith
Laboratories,  Inc.  and has been a director of several other public and private
companies.

ITEM  11.  EXECUTIVE  COMPENSATION
----------------------------------

The following table shows the compensation paid to the Company's Chief Executive
Officer  as  of  December  31,  2001, and the other four most highly compensated
executive  officers  as  of December 31, 2001 who received total compensation in
excess of $100,000 during the year ended December 31, 2001 (the "Named Executive
Officers"). The compensation disclosed is for the three years ended December 31,
2001.

<TABLE>
<CAPTION>
                                                                                        LONG-TERM
                                                                                      COMPENSATION
                                                                                          AWARDS
                                                ANNUAL  COMPENSATION                  -------------
                                               ----------------------   OTHER COM-    STOCK OPTIONS
      NAME             PRINCIPAL POSITION      YEAR   SALARY   BONUS   PENSATION(1)      GRANTED
------------------  -------------------------  ----  --------  ------  -------------  -------------
<S>                 <C>                        <C>   <C>       <C>     <C>            <C>
James E. Buncher    President and Chief        2001  $246,000  $   --  $         928        100,000
                    Executive Officer (2)      2000   187,500      --             --        600,000
                                               1999        --      --             --             --

Stephen J. Baker    Executive Vice President   2001   152,000      --             --        300,000
                    and Chief Operating        2000        --      --             --             --
                    Officer (3)                1999        --      --             --             --

Dennis L. Gates     Senior Vice President      2001   197,000      --             --             --
                    and Chief Financial        2000   203,750      --             --        375,000
                    Officer (4)                1999    34,833      --             --         50,000

Ronald I. Brendzel  Senior Vice President,     2001   193,000      --             --             --
                    General Counsel and        2000   185,000      --             --        120,000
                    Secretary                  1999   185,000      --            900             --

Kenneth E. Keating  Vice President,            2001   180,000      --            938             --
                    Marketing and Chief        2000   170,654      --             --        120,000
                    Marketing Officer (5)      1999   150,000      --             --             --
<FN>
________________________________

(1)  Other  compensation  consists  of  matching  contributions to the Company's
     401(k)  plan  in  2001,  and  life  insurance  premiums  in  1999.
(2)  Mr.  Buncher joined the Company as President and Chief Executive Officer in
     March  2000.
(3)  Mr.  Baker  joined  the  Company  as  Executive  Vice  President  and Chief
     Operating  Officer  in  April  2001.
(4)  Mr.  Gates  joined the Company as Senior Vice President and Chief Financial
     Officer  in  November  1999.
(5)  Mr. Keating became Vice President, Marketing and Chief Marketing Officer in
     May  2001. He was Vice President, Sales and Marketing from February 2000 to
     May  2001,  and was Western Regional Vice President prior to February 2000.
</TABLE>

The  Company  has  employment  agreements  with  Messrs.  Buncher, Baker, Gates,
Brendzel,  and  Keating,  all  of  which expire on June 30, 2002, except for the
agreement  with  Mr.  Baker, which expires on April 30, 2004. The current annual
salaries of each of these executives are $250,000, $220,000, $200,000, $185,000,
and  $180,000,  respectively, in addition to potential performance bonuses.  The
Company  may  terminate  any  of  the  agreements  for  cause  without  further
compensation  responsibility  to  the  employee,  or without cause by paying the
employee  an  amount  as  described  below.  Each  executive  may  terminate his
employment  agreement for any reason.  In the event that more than fifty percent
(50%)  of  the Company's outstanding common stock is purchased by an entity that
is  not  an  existing  stockholder  and there is a substantial diminution of the
employee's authority or job responsibilities, then the executive, at his option,
may  terminate  his  employment  agreement.  In  such  event,  or if the Company
terminates  the  employment agreement without cause, the Company is obligated to
pay  the  executive  an amount equal to the employee's current annual salary, or
the  amount  due through the end of the employment agreement, whichever is less,
but in no event less than six (6) months of the employee's annual salary then in
effect.


                                       29
<PAGE>
STOCK  OPTION  GRANTS  DURING  THE  YEAR  ENDED  DECEMBER  31,  2001

Stock  options  granted  to  the  Named Executive Officers during the year ended
December  31,  2001  were  as  follows.


<TABLE>
<CAPTION>
                  INDIVIDUAL STOCK OPTION GRANTS                      POTENTIAL REALIZABLE VALUE
----------------------------------------------------------------------  AT ASSUMED ANNUAL RATES
                     NUMBER OF  % OF TOTAL                                    OF STOCK
                     SHARES       OPTIONS                                 PRICE APPRECIATION
                    UNDERLYIN   GRANTED TO    EXERCISE                    FOR OPTION TERM (3)
                     OPTIONS     EMPLOYEES    PRICE PER    EXPIRATION   -----------------------
NAME                 GRANTED      IN 2001     SHARE(1)      DATE(2)          5%          10%
------------------  ----------  -----------  -----------  ------------  ------------  ---------
<S>                 <C>         <C>          <C>          <C>           <C>           <C>
James E. Buncher       100,000        12.4%  $      1.20  August 2010   $    75,467   $191,249
Stephen J. Baker       250,000        31.1%         1.25  April 2010        196,530    498,045
Stephen J. Baker        50,000         6.2%         1.20  August 2010        37,734     95,625
Dennis L. Gates             --          --            --            --           --         --
Ronald I. Brendzel          --          --            --            --           --         --
Kenneth E. Keating          --          --            --            --           --         --
<FN>
______________________

(1)  The  exercise price per share of each of the options is equal to or greater
     than  the  market  price  of  the Company's common stock on the date of the
     grant.  Subject  to  the terms of each option agreement, the exercise price
     may  be  paid  in  cash  or  in  shares of common stock owned by the option
     holder,  or  by  a  combination  of  the  foregoing.
(2)  Each of the options becomes exercisable in three equal annual installments.
     Exercisability  of  the  options  may  be  accelerated  in  the  event of a
     commencement of a tender offer for shares of the Company, the signing of an
     agreement  for certain mergers or consolidations involving the Company, the
     sale  of all or substantially all of the assets of the Company, a change of
     control, or certain other extraordinary corporate transactions. The options
     are  subject  to  early  termination  in  the  event  the  option  holder's
     employment  is  terminated.
(3)  There  is  no assurance that the actual stock appreciation over the term of
     the  options  will be at the assumed five percent (5%) or ten percent (10%)
     levels or at any other defined level. Unless the market price of the common
     stock  does  in  fact  appreciate  over  the  option term, no value will be
     realized  from  the  option  grants.
</TABLE>

STOCK  OPTION  EXERCISES  AND  YEAR-END  STOCK  OPTION  VALUES

There  were  no  stock  options exercised by any of the Named Executive Officers
during  the  year  ended  December  31,  2001.  Stock  options held by the Named
Executive  Officers at December 31, 2001 are shown in the following table. There
were  no  stock  appreciation  rights  outstanding  as  of  December  31,  2001.

<TABLE>
<CAPTION>
                   STOCK OPTIONS EXERCISED     NUMBER OF SECURITIES         VALUE OF UNEXERCISED
                    ----------------------    UNDERLYING UNEXERCISED        IN-THE-MONEY OPTIONS
                       SHARES               OPTIONS AT FISCAL YEAR-END       AT FISCAL YEAR-END
                      ACQUIRED    VALUE     --------------------------  ----------------------------
NAME                ON EXERCISE  REALIZED   EXERCISABLE  UNEXERCISABLE  EXERCISABLE   UNEXERCISABLE
------------------  -----------  ---------  -----------  -------------  ------------  --------------
<S>                 <C>          <C>        <C>          <C>            <C>           <C>

James E. Buncher             --  $      --      233,333        466,667  $    198,333  $      376,667
Stephen J. Baker             --         --           --        300,000            --         182,500
Dennis L. Gates              --         --      158,333        216,667       134,583         184,167
Ronald I. Brendzel           --         --       40,000         80,000        34,000          68,000
Kenneth E. Keating           --         --       40,000         80,000        34,000          68,000
</TABLE>

ITEM  12.  SECURITY  OWNERSHIP  OF  CERTAIN  BENEFICIAL  OWNERS  AND  MANAGEMENT
--------------------------------------------------------------------------------

The  following  table  shows  the  number of shares of common stock beneficially
owned as of March 15, 2002, by each director, each Named Executive Officer, each
entity  that,  to  the Company's knowledge, beneficially owned 5% or more of the
total  outstanding  common  stock  of  the  Company, and all directors and Named
Executive  Officers as a group. The number of shares beneficially owned includes
the  number of shares of common stock into which the convertible preferred stock


                                       30
<PAGE>
held by each person is convertible. To the Company's knowledge, the named person
has  sole voting and investment power with respect to all shares of common stock
listed,  except  where indicated otherwise. The total number of shares of common
stock  outstanding  as  of  March 15, 2002 was 4,820,832 and the total number of
shares  of  preferred  stock  outstanding  as of that date was 300,000, which is
convertible into 30,000,000 shares of common stock. The following table includes
the  common  share  equivalents  of the convertible preferred stock, because the
Company  believes  the  convertible preferred stock is essentially equivalent to
common  stock,  based  on all the rights and preferences of both types of stock.

<TABLE>
<CAPTION>
                                                                      NUMBER OF SHARES
                                                                        BENEFICIALLY    % OF TOTAL SHARES
                      OFFICER OR DIRECTOR                                  OWNED(1)     OUTSTANDING(2)
-------------------------------------------------------------------  -----------------  -----------------
<S>                                                                  <C>                <C>
  John Hancock Life Insurance Company (3)                                   15,000,000               43.1
  CAI Capital Partners & Company II, Limited Partnership (4)                 8,514,579               24.5
  Leslie B. Daniels (5)                                                         84,500                  *
  Jack R. Anderson (6)                                                       3,210,615                9.2
  Steven J. Baileys (7)                                                      2,711,267                7.8
  The Burton Partnership (8)                                                 2,199,185                6.3
  James E. Buncher (9)                                                         725,667                2.1
  Dennis L. Gates (10)                                                         416,667                1.2
  Ronald I. Brendzel (11)                                                      310,673                  *
  Stephen J. Baker (12)                                                        104,533                  *
  Kenneth E. Keating (13)                                                       86,000                  *
  Stephen J. Blewitt (3)                                                            --                  *

  All directors and Named Executive Officers as a group (9 persons)         31,080,001               86.7

  All principal stockholders in total                                       33,279,186               92.8

  *  Indicates less than one percent (1%)
<FN>
___________________________

(1)  Includes  the  number  of shares of common stock into which the convertible
     preferred  stock  held  by each person is convertible. Also includes shares
     issuable  pursuant  to stock options that are exercisable within 60 days of
     March  15,  2002. Some of the stockholders included in this table reside in
     states  having  community  property  laws  under  which  the  spouse  of  a
     stockholder  in  whose  name  securities  are registered may be entitled to
     share  in the management of their community property, which may include the
     right  to  vote  or  dispose  of  such  shares.

(2)  For  purposes  of  computing  all  the  percentages shown, the total shares
     outstanding  includes the shares of common stock into which all outstanding
     shares  of  convertible  preferred  stock  are convertible. For purposes of
     computing  the percentage for each individual, the total shares outstanding
     includes  the shares issuable to that person pursuant to stock options that
     are exercisable within 60 days of March 15, 2002. For purposes of computing
     the  percentages  for  all  directors  and officers as a group, and for all
     principal  stockholders  as  a group, the total shares outstanding includes
     all  the shares issuable pursuant to stock options that are included in the
     above  table.

(3)  Mr.  Blewitt  is  employed  by  an affiliate of John Hancock Life Insurance
     Company,  which has beneficial ownership of 15,000,000 shares issuable upon
     conversion  of  shares  of  convertible  preferred  stock,  as to which Mr.
     Blewitt disclaims beneficial ownership. The address of Mr. Blewitt and John
     Hancock Life Insurance Company is John Hancock Place, P.O. Box 111, Boston,
     Massachusetts  02117.

(4)  Includes  84,500  shares  of  common  stock  owned directly by Mr. Daniels,
     2,780,786  shares  issuable  upon  conversion  of  shares  of  convertible
     preferred  stock  owned  by CAI Partners & Company II, Limited Partnership,
     and  5,649,293  shares  issuable  upon  conversion of shares of convertible
     preferred  stock  owned  by  CAI  Capital  Partners  &  Company II, Limited
     Partnership  (collectively  "CAI").  Mr.  Daniels  is  a  principal of both
     entities.  The  address  of  CAI  and  Mr. Daniels is 767 Fifth Avenue, 5th
     Floor,  New  York,  New  York  10153.


                                       31
<PAGE>
(5)  Represents  84,500  shares  of  common stock owned directly by Mr. Daniels.
     Does  not  include  2,780,786  shares issuable upon conversion of shares of
     convertible  preferred  stock  owned  by CAI Partners & Company II, Limited
     Partnership,  and  5,649,293  shares  issuable upon conversion of shares of
     convertible  preferred  stock  owned  by CAI Capital Partners & Company II,
     Limited  Partnership  (collectively  "CAI").  Mr. Daniels is a principal of
     both  entities.  The address of Mr. Daniels is 767 Fifth Avenue, 5th Floor,
     New  York,  New  York  10153.

(6)  Includes 1,802,885 shares issuable upon conversion of shares of convertible
     preferred  stock  and  226,000 shares of common stock held by Mr. Anderson.
     Also  includes  1,081,730  shares  issuable  upon  conversion  of shares of
     convertible preferred stock and 100,000 shares of common stock owned by Mr.
     Anderson's  spouse as separate property, as to which Mr. Anderson disclaims
     beneficial  ownership. The address of Mr. Anderson is 16475 Dallas Parkway,
     Suite  735,  Addison,  Texas  77001.

(7)  Includes  645,000  shares  of  common  stock  held by Dr. Baileys directly,
     912,500  shares issuable upon conversion of shares of convertible preferred
     stock  held  by  the  Baileys  Family  Trust  and affiliated trusts for the
     benefit of various relatives of Dr. Baileys, 700,767 shares of common stock
     owned  by  the Baileys Family Trust, 303,000 shares of common stock held in
     various trusts for relatives of Dr. Baileys, as to all of which Dr. Baileys
     is trustee and for which Dr. Baileys has sole power to vote the securities,
     and  150,000 shares of common stock held by the Alvin and Geraldine Baileys
     Foundation,  for which Dr. Baileys is an officer and director and for which
     Dr.  Baileys has shared power to vote the securities. Dr. Baileys disclaims
     beneficial  ownership  of any of the shares in the trusts or the foundation
     referenced  above.  The address of Dr. Baileys is 95 Enterprise, Suite 100,
     Aliso  Viejo,  California  92656.

(8)  Includes  130,325  shares  of common stock and 419,470 shares issuable upon
     conversion  of  shares  of  convertible preferred stock owned by the Burton
     Partnership,  Limited  Partnership  ("BPLP"),  and 390,975 shares of common
     stock  and  1,258,415  shares  issuable  upon  conversion  of  shares  of
     convertible  preferred  stock owned by the Burton Partnership (QP), Limited
     Partnership  ("QP").  Mr. Donald W. Burton is a principal of both entities.
     The  address  of BPLP, QP and Mr. Burton is P.O. Box 4643, Jackson, Wyoming
     83001.

(9)  Includes  59,000  shares  of  common  stock,  200,000  shares issuable upon
     conversion  of  shares  of  convertible  preferred  stock,  and  options to
     purchase  466,667  shares  of  common  stock.

(10) Includes  100,000  shares issuable upon conversion of shares of convertible
     preferred  stock,  and  options to purchase 316,667 shares of common stock.

(11) Includes  130,673  shares  of  common  stock,  100,000 shares issuable upon
     conversion  of  shares  of  convertible  preferred  stock,  and  options to
     purchase  80,000  shares  of  common  stock.

(12) Includes  21,200  shares  of  common  stock  and options to purchase 83,333
     shares  of  common  stock.

(13) Includes 6,000 shares of common stock and options to purchase 80,000 shares
     of  common  stock.
</TABLE>

ITEM  13.  CERTAIN  RELATIONSHIPS  AND  RELATED  TRANSACTIONS
-------------------------------------------------------------

The Company paid $200,000 and $117,000 of consulting fees to the chairman of its
board  of  directors  during  the  years  ended  December  31,  2001  and  2000,
respectively.  In  addition,  please  see  the  discussion  of  the  Company's
recapitalization  transaction  under  "Recent Developments" in Part I, Item 1 of
this  Form  10-K.


                                       32
<PAGE>
                                     PART IV

ITEM  14.  EXHIBITS,  FINANCIAL  STATEMENT  SCHEDULES,  AND  REPORTS ON FORM 8-K
--------------------------------------------------------------------------------

(a)  FINANCIAL  STATEMENTS,  FINANCIAL  STATEMENT  SCHEDULES,  AND  EXHIBITS

The  consolidated  financial  statements  and  financial  statement  schedule of
SafeGuard  Health  Enterprises, Inc. filed as part of this 2001 Annual Report on
Form  10-K  are listed in the accompanying Index to Financial Statements on Page
F-1.  An  "Exhibit  Index"  is  included in this 2001 Annual Report on Form 10-K
beginning  on  Page  E-1. All Exhibits are either attached hereto or are on file
with  the  Securities  and  Exchange  Commission.

(b)  REPORTS  ON  FORM  8-K

None.


                                       33
<PAGE>
                                   SIGNATURES

Pursuant  to  the requirements of Section 13 or 15(d) of the Securities Exchange
Act  of  1934,  the  registrant  has duly caused this report to be signed on its
behalf  by  the  undersigned,  thereunto  duly  authorized.

                       SAFEGUARD HEALTH ENTERPRISES, INC.

  By: /s/ James E. Buncher                               Date:  March 28, 2002
     -------------------------------                     ---------------------
  James  E.  Buncher
  President, Chief Executive Officer and Director
  (Principal  Executive  Officer)


  By: /s/ Dennis L. Gates                                Date:  March 28, 2002
     -------------------------------                     ---------------------
  Dennis  L.  Gates
  Senior Vice President, Chief Financial Officer and Director
  (Principal  Accounting  Officer)


Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has  been  signed below by the following persons on behalf of the registrant and
in  the  capacities  and  on  the  dates  indicated.


  By: /s/ James E. Buncher                               Date:  March 28, 2002
     -------------------------------                     ---------------------
  James E. Buncher
  President, Chief Executive Officer and Director


  By: /s/ Steven J. Baileys                              Date:  March 28, 2002
     -------------------------------                     ---------------------
  Steven J. Baileys, DDS
  Chairman of the Board of Directors


  By: /s/ Ronald I. Brendzel                             Date:  March 28, 2002
     -------------------------------                     ---------------------
  Ronald I. Brendzel, JD
  Senior Vice President, General Counsel, Secretary and Director


  By: /s/ Dennis L. Gates                                Date:  March 28, 2002
     -------------------------------                     ---------------------
  Dennis L. Gates
  Senior Vice President, Chief Financial Officer and Director


  By: /s/ Jack R. Anderson                               Date:  March 28, 2002
     -------------------------------                     ---------------------
  Jack R. Anderson
  Director


  By: /s/ Stephen J. Blewitt                             Date:  March 28, 2002
     -------------------------------                     ---------------------
  Stephen J. Blewitt
  Director


  By: /s/ Leslie B. Daniels                              Date:  March 28, 2002
     -------------------------------                     ---------------------
  Leslie B. Daniels
  Director


                                       34
<PAGE>
                                  EXHIBIT INDEX

EXHIBIT
NUMBER                             DESCRIPTION
------    ----------------------------------------------------------------------

2.1       Plans  of  Acquisition  (5)
3.1       Articles  of  Incorporation  (3)
3.1.1     Amended  and  Restated  Certificate  of  Incorporation  (11)
3.1.2     Certificate  of  Designation  of  Preferred  Stock  (11)
3.2       Amended and Restated Bylaws
10.1      1984  Stock  Option  Plan  (2)
10.2      Stock  Option  Plan  Amendment  (1)
10.3      Stock  Option  Plan  Amendment  (3)
10.4      Stock  Option  Plan  Amendment  (4)
10.5      2000  Stock  Option  Plan  Amendment  (12)
10.6      Form  of  Employment  Agreement  between  the  Company  and  the Named
          Executive  Officers  (12)
10.7      Form  of  Rights  Agreement,  dated  as of March 22, 1996, between the
          Company and American Stock Transfer and Trust Company, as Rights Agent
          (5)
10.8      Default  Forbearance  Agreement  and Irrevocable Power of Attorney (6)
10.9      First  Waiver  and  Amendment  to  Note  Purchase  Agreement  (7)
10.10     Amended  and  Restated  Loan  and  Security  Agreement  (7)
10.11     Debenture  and  Note  Purchase  Agreement  (8)
10.12     Stockholder  Agreement  (8)
10.13     First  Amendment  to  Debenture  and  Note  Purchase  Agreement  (9)
10.14     Second  Amendment  to  Debenture  and  Note  Purchase  Agreement (9)
10.15     Term  Sheet  Agreement  dated  as  of  March  1,  2000  (10)
10.16     Loan  Document  and  Purchase  Agreement  (11)
10.17     Agreement  among  Stockholders  and  the  Company  (11)
10.18     Registration  Rights  Agreement between certain Stockholders and the
          Company  (11)
10.19     Consulting  Agreement between the Company and Steven J. Baileys (12)
10.20     Asset  Purchase  Agreement  between  the  Company  and  Total Dental
          Administrators  Health  Plan,  Inc.
10.21     Administrative  Services  Agreement  between  the  Company and Total
          Dental  Administrators  Health  Plan,  Inc.
10.22     Stock  Purchase  Agreement  between  the  Company  and  Total Dental
          Administrators,  Inc.
10.23     Promissory  Note  and  Security  Interest  given  by  Total  Dental
          Administrators,  Inc.  to  the  Company
10.24     Administrative  Services  Agreement  between  the  Company and Total
          Dental  Administrators,  Inc.
10.25     Stock  Purchase  Agreement  between the Company and Dental Source of
          Missouri  and  Kansas,  Inc.
10.26     First  Amendment to Stock Purchase Agreement between the Company and
          Dental  Source  of  Missouri  and  Kansas,  Inc.
10.27     Administrative  Services  Agreement  between  the Company and Dental
          Source  of  Missouri  and  Kansas,  Inc.
10.28     Amended  and  Restated  401(k)  Plan
10.29     First  Amendment  to  Amended  and  Restated  401(k)  Plan
21.1      Subsidiaries  of  the  Company
23.1      Independent  Auditors'  Consent
____________________________

(1)  Incorporated  by  reference herein and disclosed and filed as an exhibit to
     the Company's Registration Statement on Form S- 1 filed as of September 12,
     1983  (File  No.  2-86472).
(2)  Incorporated  by  reference herein and disclosed and filed as an exhibit to
     the  Company's  Registration Statement on Form S-1 filed as of July 3, 1984
     (File  No.  2-92013).
(3)  Incorporated  by  reference herein and disclosed and filed as an exhibit to
     the  Company's  Annual  Report of Form 10-K for the year ended December 31,
     1989.
(4)  Incorporated  by  reference herein and disclosed and filed as an exhibit to
     the  Company's  Annual  Report of Form 10-K for the year ended December 31,
     1992.


                                      E-1
<PAGE>
(5)  Incorporated  by  reference herein and disclosed and filed as an exhibit to
     the  Company's  Report  on  Form  8-K  dated  as  of  September  27,  1996.
(6)  Incorporated  by  reference herein and disclosed and filed as an exhibit to
     the  Company's  Annual  Report on Form 10-K for the year ended December 31,
     1998.
(7)  Incorporated  by  reference herein and disclosed and filed as an exhibit to
     the  Company's  Report  on  Form  8-K  dated  as  of  June  4,  1999.
(8)  Incorporated  by  reference herein and disclosed and filed as an exhibit to
     the  Company's  Report  on  Form  8-K  dated  as  of  June  30,  1999.
(9)  Incorporated  by  reference herein and disclosed and filed as an exhibit to
     the  Company's  Report  on  Form  8-K  dated  as  of  October  5,  1999.
(10) Incorporated  by  reference herein and disclosed and filed as an exhibit to
     the  Company's  Report  on  Form  8-K  dated  as  of  March  16,  2000.
(11) Incorporated  by  reference herein and disclosed and filed as an exhibit to
     the  Company's  Report  on  Form  8-K  dated  as  of  March  6,  2001.
(12) Incorporated  by  reference herein and disclosed and filed as an exhibit to
     the  Company's  Annual  Report on Form 10-K for the year ended December 31,
     2000.


                                      E-2
<PAGE>
               SAFEGUARD HEALTH ENTERPRISES, INC. AND SUBSIDIARIES
                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS



                                                                        PAGE
                                                                    -----------
Independent Auditors' Report . . . . . . . . . . . . . . . . . . .      F-2

Financial Statements:

  Consolidated Balance Sheets. . . . . . . . . . . . . . . . . . .      F-3

  Consolidated Statements of Operations. . . . . . . . . . . . . .      F-4

  Consolidated Statements of Stockholders' Equity (Deficit). . . .      F-5

  Consolidated Statements of Cash Flows. . . . . . . . . . . . . .      F-6

  Notes to Consolidated Financial Statements . . . . . . . . . . .  F-7 to F-25

Financial Statement Schedule:

  Schedule II - Valuation and Qualifying Accounts. . . . . . . . .     F-26


                                      F-1
<PAGE>
                          INDEPENDENT AUDITORS' REPORT


To  the  Board  of  Directors  and Stockholders of SafeGuard Health Enterprises,
Inc.:

We have audited the accompanying consolidated balance sheets of SafeGuard Health
Enterprises,  Inc.  and subsidiaries (the "Company") as of December 31, 2001 and
2000,  and  the  related  consolidated  statements  of operations, stockholders'
equity (deficit), and cash flows for each of the three years in the period ended
December 31, 2001. Our audits also included the consolidated financial statement
schedule  for the years ended December 31, 2001, 2000, and 1999, included in the
Index at Item 14(a)(2). These consolidated financial statements and consolidated
financial statement schedule are the responsibility of the Company's management.
Our  responsibility  is  to  express  an  opinion  on the consolidated financial
statements  and  consolidated  financial statement schedule based on our audits.

We conducted our audits in accordance with auditing standards generally accepted
in  the  United  States  of  America.  Those  standards require that we plan and
perform  the  audit  to  obtain reasonable assurance about whether the financial
statements  are free of material misstatement. An audit includes examining, on a
test  basis,  evidence  supporting  the amounts and disclosures in the financial
statements.  An audit also includes assessing the accounting principles used and
significant  estimates  made  by  management,  as well as evaluating the overall
financial  statement  presentation.  We  believe  that  our  audits  provide  a
reasonable  basis  for  our  opinion.

In  our  opinion,  such consolidated financial statements present fairly, in all
material  respects,  the  consolidated  financial  position  of SafeGuard Health
Enterprises,  Inc.  and  subsidiaries  as of December 31, 2001 and 2000, and the
results  of their operations and their cash flows for each of the three years in
the  period  ended  December  31, 2001, in conformity with accounting principles
generally  accepted  in the United States of America. Also, in our opinion, such
consolidated  financial  statement  schedule, when considered in relation to the
basic  consolidated  financial  statements taken as a whole, presents fairly, in
all  material  respects,  the  information  set  forth  therein.

DELOITTE & TOUCHE LLP

Costa Mesa, California
March 7, 2002


                                      F-2
<PAGE>
<TABLE>
<CAPTION>
                            SAFEGUARD HEALTH ENTERPRISES, INC. AND SUBSIDIARIES
                                        CONSOLIDATED BALANCE SHEETS
                                     AS OF DECEMBER 31, 2001 AND 2000
                              (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)


                                                                                        2001       2000
                                                                                      ---------  ---------
<S>                                                                                   <C>        <C>
                                      ASSETS

Current assets:
  Cash and cash equivalents                                                           $  1,497   $  1,381
  Investments available-for-sale, at fair value                                         13,956     15,321
  Accounts receivable, net of allowances of $508 in 2001 and $868 in 2000                2,839      2,778
  Other current assets                                                                     903      1,788
                                                                                      ---------  ---------
    Total current assets                                                                19,195     21,268

Property and equipment, net of accumulated depreciation and amortization                 2,348      2,843
Restricted investments available-for-sale, at fair value                                 2,831      2,700
Notes receivable, net of allowances of $467 in 2001 and $2,806 in 2000                     805      1,750
Intangible assets, net of accumulated amortization of $254 in 2001 and $342 in 2000      3,920      4,154
Other assets                                                                               226        380
                                                                                      ---------  ---------
    Total assets                                                                      $ 29,325   $ 33,095
                                                                                      =========  =========

                 LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)

Current liabilities:
  Accounts payable                                                                    $  3,168   $  3,986
  Accrued interest, subject to conversion to equity                                         --      4,990
  Other accrued expenses                                                                 4,827      6,457
  Short-term debt, subject to conversion to equity                                          --     47,545
  Other short-term debt                                                                    265        235
  Claims payable and claims incurred but not reported                                    5,905      7,554
  Deferred revenue                                                                         823      1,413
                                                                                      ---------  ---------
    Total current liabilities                                                           14,988     72,180

Long-term debt                                                                              --        265
Other long-term liabilities                                                                971      1,079
Commitments and contingencies (Note 10)

Stockholders' equity (deficit):
  Convertible preferred stock and additional paid-in capital - $.01 par value;
    1,000,000 shares authorized; 300,000 shares issued and outstanding in 2001,
    and none issued or outstanding in 2000; liquidation preference of $30 million       41,250         --
  Common stock and additional paid-in capital - $.01 par value;
    40,000,000 shares authorized; 8,065,000 shares and 8,022,000 shares
    issued in 2001 and 2000; 4,798,000 shares and 4,747,000 shares
    outstanding in 2001 and 2000                                                        21,552     21,829
  Retained earnings (accumulated deficit)                                              (31,447)   (44,254)
  Accumulated other comprehensive income                                                    63        119
  Treasury stock, at cost                                                              (18,052)   (18,123)
                                                                                      ---------  ---------
    Total stockholders' equity (deficit)                                                13,366    (40,429)
                                                                                      ---------  ---------
    Total liabilities and stockholders' equity (deficit)                              $ 29,325   $ 33,095
                                                                                      =========  =========
</TABLE>

          See accompanying Notes to Consolidated Financial Statements.


                                      F-3
<PAGE>
<TABLE>
<CAPTION>
                     SAFEGUARD HEALTH ENTERPRISES, INC. AND SUBSIDIARIES
                            CONSOLIDATED STATEMENTS OF OPERATIONS
                        YEARS ENDED DECEMBER 31, 2001, 2000, AND 1999
                            (IN THOUSANDS, EXCEPT PER SHARE DATA)


                                                                  2001      2000      1999
                                                                --------  --------  ---------
<S>                                                             <C>       <C>       <C>
Premium revenue, net                                            $84,822   $97,251   $ 96,225

Health care services expense                                     58,692    68,568     69,528
Selling, general and administrative expense                      25,391    31,203     35,072
Loss on impairment of assets                                         --       450     24,576
                                                                --------  --------  ---------

Operating income (loss)                                             739    (2,970)   (32,951)

Investment and other income                                       1,060     1,431      2,067
Interest expense on debt that was converted
  to equity in 2001                                                (402)   (4,801)    (5,610)
Other interest expense                                             (102)     (112)      (245)
                                                                --------  --------  ---------
Income (loss) before income taxes,
  discontinued operations and extraordinary item                  1,295    (6,452)   (36,739)
Income tax expense                                                   --        --     10,934
                                                                --------  --------  ---------
Income (loss) before discontinued operations
  and extraordinary item                                          1,295    (6,452)   (47,673)
Discontinued operations:
  Loss from assets transferred under contractual arrangements
    (net of income tax benefit of $2,087 in 1999)                    --    (2,500)    (4,363)
Extraordinary item:
  Gain on conversion of debt to convertible preferred stock      11,251        --         --
                                                                --------  --------  ---------

    Net income (loss)                                           $12,546   $(8,952)  $(52,036)
                                                                ========  ========  =========

Basic net income (loss) per share:
  Income (loss) before discontinued
    operations and extraordinary item                           $  0.04   $ (1.36)  $ (10.04)
  Loss from discontinued operations                                  --     (0.53)     (0.92)
  Extraordinary item                                               0.35        --         --
                                                                --------  --------  ---------

    Net income (loss)                                           $  0.39   $ (1.89)  $ (10.96)
                                                                ========  ========  =========

Weighted average basic shares outstanding                        32,253     4,747      4,747

Diluted net income (loss) per share:
  Income (loss) before discontinued
    operations and extraordinary item                           $  0.04   $ (1.36)  $ (10.04)
  Loss from discontinued operations                                  --     (0.53)     (0.92)
  Extraordinary item                                               0.34        --         --
                                                                --------  --------  ---------

    Net income (loss)                                           $  0.38   $ (1.89)  $ (10.96)
                                                                ========  ========  =========

Weighted average diluted shares outstanding                      33,009     4,747      4,747
</TABLE>

          See accompanying Notes to Consolidated Financial Statements.


                                      F-4
<PAGE>
<TABLE>
<CAPTION>
                                   SAFEGUARD HEALTH ENTERPRISES, INC. AND SUBSIDIARIES
                                CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
                                      YEARS ENDED DECEMBER 31, 2001, 2000, AND 1999
                                                     (IN THOUSANDS)


                                                                                                            ACCUMULATED
                                           NUMBER OF SHARES          PREFERRED     COMMON      RETAINED       OTHER
                                      ----------------------------   STOCK AND    STOCK AND     EARNINGS      COMPRE-
                                                      COMMON        ADDITIONAL    ADDITIONAL    (ACCUMU-      HENSIVE
                                                 -----------------     PAID-IN      PAID-IN       LATED        INCOME
                                      PREFERRED  ISSUED  TREASURY     CAPITAL      CAPITAL      DEFICIT)      (LOSS)
                                      ---------  ------  ---------  -----------  ------------  ----------  -------------
<S>                                   <C>        <C>     <C>        <C>          <C>           <C>         <C>
Balances, January 31, 1999                   --   8,022    (3,275)  $        --  $    21,509   $  16,734   $       (354)

Net loss                                     --      --        --            --           --     (52,036)            --
Other comprehensive income:
  Net unrealized gains on
    investments available-for-sale,
    net of tax of $226                                                                                              336
Total comprehensive income (loss)
Issuance of stock warrants (1)               --      --        --            --          320          --             --
                                      ---------  ------  ---------  -----------  ------------  ----------  -------------

Balances, December 31, 1999                  --   8,022    (3,275)                    21,829     (35,302)           (18)

Net loss                                                       --            --           --      (8,952)            --
Other comprehensive income:
  Net unrealized gains on
    investments available-for-sale                                                                                  137
Total comprehensive income (loss)
                                      ---------  ------  ---------  -----------  ------------  ----------  -------------


Balances, December 31, 2000                  --   8,022    (3,275)                    21,829     (44,254)           119

Net income                                   --      --        --            --           --      12,546             --
Other comprehensive income:
  Net unrealized losses on
    investments available-for-sale                                                                                  (56)
Total comprehensive income
Issuance of preferred stock                 300      --        --        41,250           --          --             --
Cancellation of stock warrants (1)           --      --        --            --         (320)        320             --
Repurchase of common stock                   --      --       (10)           --           --          --             --
Reissuance of treasury stock in
  contribution to retirement plan            --      --        18            --           --         (59)            --
Exercise of stock options                    --      43        --            --           43          --             --
                                      ---------  ------  ---------  -----------  ------------  ----------  -------------

Balances, December 31, 2001                 300   8,065    (3,267)  $    41,250  $    21,552   $ (31,447)  $         63
                                      =========  ======  =========  ===========  ============  ==========  =============


                                       TREASURY
                                        STOCK       TOTAL
                                      ----------  ---------
<S>                                   <C>         <C>
Balances, January 31, 1999            $ (18,123)  $ 19,766

Net loss                                     --    (52,036)
Other comprehensive income:
  Net unrealized gains on
    investments available-for-sale,
    net of tax of $226                                 336
                                                  ---------
Total comprehensive income (loss)                  (51,700)
Issuance of stock warrants (1)               --        320
                                      ----------  ---------

Balances, December 31, 1999             (18,123)   (31,614)

Net loss                                     --     (8,952)
Other comprehensive income:
  Net unrealized gains on
    investments available-for-sale                     137
                                                  ---------
Total comprehensive income (loss)                   (8,815)
                                      ----------  ---------

Balances, December 31, 2000             (18,123)   (40,429)

Net income                                   --     12,546
Other comprehensive income:
  Net unrealized losses on
    investments available-for-sale                     (56)
                                                  ---------
Total comprehensive income                          12,490
Issuance of preferred stock                  --     41,250
Cancellation of stock warrants (1)           --         --
Repurchase of common stock                  (10)       (10)
Reissuance of treasury stock in
  contribution to retirement plan            81         22
Exercise of stock options                    --         43
                                      ----------  ---------

Balances, December 31, 2001           $ (18,052)  $ 13,366
                                      ==========  =========
<FN>

(1)  These  warrants  were  cancelled  without being exercised as of January 31,
     2001,  in  connection  with  the  conversion of the Senior Notes Payable to
     convertible  preferred  stock,  as  discussed  in  Note  7.
</TABLE>


          See accompanying Notes to Consolidated Financial Statements.


                                      F-5
<PAGE>
<TABLE>
<CAPTION>
                       SAFEGUARD HEALTH ENTERPRISES, INC. AND SUBSIDIARIES
                              CONSOLIDATED STATEMENTS OF CASH FLOWS
                          YEARS ENDED DECEMBER 31, 2001, 2000, AND 1999
                                          (IN THOUSANDS)


                                                                    2001       2000       1999
                                                                  ---------  ---------  ---------
<S>                                                               <C>        <C>        <C>
Cash flows from operating activities:
  Net income (loss)                                               $ 12,546   $ (8,952)  $(52,036)
  Adjustments to reconcile net income (loss) to net
    cash used in operating activities:
    Loss from discontinued operations                                   --      2,500      4,363
    Gain on conversion of debt to convertible preferred stock      (11,251)        --         --
    Loss on impairment of assets                                        --        450     24,576
    Bad debt expense                                                   245        300        481
    Depreciation and amortization                                    1,838      2,767      3,832
    Write-off and amortization of deferred loan costs                   24        339      1,954
    Gain on liquidation of notes receivable                           (175)        --         --
    Gain on sale of investments                                       (101)       (18)    (1,200)
    Gain on sale of property and equipment                              --        (83)        --
    Deferred income taxes                                               --         --     10,569
    Contribution to retirement plan in the form of common stock         22         --         --
  Changes in operating assets and liabilities:
    Accounts receivable                                               (306)      (100)      (114)
    Other current assets                                               685       (667)       370
    Accounts payable                                                  (818)       424     (1,455)
    Other accrued expenses                                          (2,034)     3,266        (61)
    Claims payable and claims incurred but not reported             (1,649)    (1,092)     3,994
    Deferred revenue                                                  (469)      (562)       953
                                                                  ---------  ---------  ---------
  Net cash used in operating activities                             (1,443)    (1,428)    (3,774)

Cash flows from investing activities:
  Purchase of investments available-for-sale                       (15,599)   (42,477)   (13,267)
  Proceeds from sale/maturity of investments available-for-sale     16,878     31,941     15,015
  Purchase of property and equipment                                (1,109)      (646)    (1,220)
  Proceeds from sale of property and equipment                          --        218      3,500
  Payments received on notes receivable                              1,320      1,305        518
  Issuance of notes receivable                                          --         --       (500)
  Decrease (increase) in other assets                                   58       (468)      (969)
                                                                  ---------  ---------  ---------
    Net cash provided by (used in) investing activities              1,548    (10,127)     3,077

Cash flows from financing activities:
  Borrowings on debt                                                    --      8,000         --
  Increase in accrued interest, converted to equity in 2001            321      3,783      1,207
  Payments on debt                                                    (235)      (255)    (2,594)
  Repurchase of common stock                                           (10)        --         --
  Exercise of stock options                                             43         --         --
  Payment of other long-term liabilities                              (108)      (231)       (48)
                                                                  ---------  ---------  ---------
    Net cash provided by (used in) financing activities                 11     11,297     (1,435)
                                                                  ---------  ---------  ---------
Net increase (decrease) in cash and cash equivalents                   116       (258)    (2,132)
Cash and cash equivalents at beginning of year                       1,381      1,639      3,771
                                                                  ---------  ---------  ---------

Cash and cash equivalents at end of year                          $  1,497   $  1,381   $  1,639
                                                                  =========  =========  =========

Supplementary information:
  Cash paid during the year for interest                          $    315   $    720   $  4,189
Supplementary disclosure of non-cash activities:
  Debt converted into convertible preferred stock                   41,250         --         --
  Issuance of debt in exchange for cancellation of lease                --        500         --
</TABLE>
          See accompanying Notes to Consolidated Financial Statements.


                                      F-6
<PAGE>
               SAFEGUARD HEALTH ENTERPRISES, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE  1.ORGANIZATION  AND  SIGNIFICANT  ACCOUNTING  POLICIES
------------------------------------------------------------

SafeGuard  Health  Enterprises,  Inc.,  a  Delaware corporation (the "Company"),
provides  a  wide range of dental benefit plans, vision benefit plans, and other
related  products. The Company's operations are primarily in California, Florida
and  Texas,  but  it also operates in several other states. The Company conducts
its  operations  through  several  subsidiaries,  one  of  which is an insurance
company that is licensed in several states, and several of which are licensed as
dental health maintenance organization ("HMO") plans in the states in which they
operate.  The  Company  provides  dental  benefits and other related products to
approximately  625,000  individuals. The Company was founded as a not-for-profit
entity  in California in 1974, and was converted to a for-profit entity in 1982.

Under  the  dental  HMO  plan designs provided by the Company, a majority of the
total  health  care  services  expense consists of capitation payments to dental
service providers, which are fixed monthly payments for each covered individual.
These  capitation  arrangements limit the amount of risk assumed by the Company.
Under  the dental preferred provider organization ("PPO")/indemnity plan designs
provided  by  the  Company,  all health care services expense consists of claims
that  are  paid  each time a covered individual receives dental services.  Under
this  type  of  plan  design,  the  Company assumes all of the utilization risk.
Capitation  payments  comprised  37%,  41% and 45% of the Company's total health
care  services  expense during the years ended December 31, 2001, 2000 and 1999,
respectively.

BASIS  OF  PRESENTATION

The  consolidated  financial  statements include all the accounts of the Company
and  its  subsidiaries.  Intercompany  accounts  and  transactions  have  been
eliminated  in  consolidation.  The  Company's consolidated financial statements
were prepared in accordance with accounting principles generally accepted in the
United  States  of  America.

BUSINESS  SEGMENT  INFORMATION

Management  views  certain  geographic areas as separate operating segments, and
therefore, measures the Company's operating results separately for each of those
geographic  areas.  The Company provides essentially the same services in all of
the geographic areas in which it operates. For financial reporting purposes, all
the  Company's  operating  segments  are  aggregated into one reporting segment,
which  provides  dental  benefit  plans and other related products to employers,
individuals  and  other  purchasers.

CASH  AND  CASH  EQUIVALENTS

Investments  with  an  original maturity of three months or less are included in
cash  equivalents.

RESTRICTED  DEPOSITS  AND  MINIMUM  NET  WORTH  REQUIREMENTS

Several  of  the  Company's  subsidiaries  are subject to state regulations that
require them to maintain restricted deposits in the form of cash or investments.
The Company had total restricted deposits of $2.8 million and $2.7 million as of
December  31,  2001  and  2000,  respectively.

In  addition,  several  of  the  Company's  subsidiaries  are  subject  to state
regulations  that  require them to maintain minimum amounts of statutory capital
and  surplus.  The  aggregate  minimum  statutory  capital  and  surplus that is
required  with  respect to all of the Company's subsidiaries that are subject to
minimum  capital  and surplus requirements was approximately $10.6 million as of
December  31,  2001.  The  aggregate  statutory  capital  and  surplus  in these
subsidiaries  as  of  December  31, 2001, was approximately $11.2 million.  As a
result  of  these  regulatory  requirements,  approximately $10.7 million of the
Company's  consolidated  stockholders'  equity  as of December 31, 2001, was not
available  for  the  payment  of  dividends  to  the  Company's stockholders. In
addition,  the amount of consolidated stockholders' equity that is available for
dividends  may  be  further  restricted  by  the amount of cash and other liquid
assets  in  the  Company's  non-regulated  entities.


                                      F-7
<PAGE>
INVESTMENTS

In accordance with Statement of Financial Accounting Standards ("SFAS") No. 115,
"Accounting  for Certain Investments in Debt and Equity Securities," the Company
has  classified  its investments as "available-for-sale." Investments classified
as  available-for-sale are carried at fair value, based on quoted market prices,
and unrealized gains and losses, net of applicable income taxes, are reported in
stockholders' equity under the caption "Accumulated other comprehensive income."
In  the  event  there  was  an unrealized loss on an investment that the Company
believed  to be a permanent loss, the loss would be reported in the statement of
operations,  instead  of  in  a  separate caption of stockholders' equity. As of
December  31, 2001, there were no unrealized losses that the Company believed to
be  permanent  losses.

FAIR  VALUE  OF  FINANCIAL  INSTRUMENTS

The  accompanying  consolidated  balance  sheets include the following financial
instruments  as  of  December  31, 2001: cash and cash equivalents, investments,
accounts  receivable,  notes  receivable,  accounts  payable,  accrued expenses,
short-term  and  long-term  debt,  and other long-term liabilities. All of these
financial  instruments,  except  for notes receivable, long-term debt, and other
long-term  liabilities,  are  current assets or current liabilities. The Company
expects  to  realize  the  current  assets,  and to pay the current liabilities,
within a short period of time. Therefore, the carrying amount of these financial
instruments approximates fair value. Notes receivable, which are long-term, have
been written down to the Company's estimate of their net realizable value, which
approximates  fair  value.  Long-term  debt  and other long-term liabilities are
stated  at the present value of the expected future payments, which approximates
fair  value.

PROPERTY  AND  EQUIPMENT

Property  and  equipment  is recorded at cost. Depreciation and amortization are
calculated using the straight-line method over the estimated useful lives of the
assets.  Depreciation  of  leasehold  improvements  is  calculated  based on the
shorter  of  the  estimated  useful  lives  of  the assets, or the length of the
related  lease.  The  Company  uses  the  following  useful  lives  to  record
depreciation  expense: leasehold improvements - 5 to 10 years; computer hardware
and  software - 3 to 4 years; and furniture, fixtures and other office equipment
-  5  to  7  years. The cost of maintenance and repairs is expensed as incurred,
while significant improvements that extend the estimated useful life of an asset
are  capitalized.  Upon  the sale or other retirement of assets, the cost of any
such  assets and the related accumulated depreciation are removed from the books
and  any  resulting  gain  or  loss  is  recognized.

INTANGIBLE  ASSETS

Intangible  assets  at December 31, 2001 consist entirely of goodwill related to
the  acquisition  of  a dental HMO company in 1996. This goodwill represents the
excess  of the purchase price of the acquired company over the fair value of the
net  assets acquired. The Company estimates that this goodwill has a useful life
of  40  years  from the date of acquisition of the related entity, and amortized
the goodwill over that period during the three years ended December 31, 2001. In
accordance  with  SFAS  No.  142,  "Goodwill  and  Other Intangible Assets," the
Company's  goodwill  will  not be amortized after December 31, 2001, but will be
evaluated  for  possible  impairment  on  an  ongoing  basis. See Note 5 for the
Company's  policy for assessing recoverability of goodwill and a discussion of a
charge  to  earnings  during  1999  for  impairment  of  goodwill.

LONG-LIVED  ASSETS

In  accordance  with  SFAS No. 121, "Accounting for the Impairment of Long-Lived
Assets  and  for  Long-Lived  Assets  to  be Disposed Of," long-lived assets are
reviewed  for  events  or  changes  in  circumstances  that  indicate that their
carrying values may not be recoverable. The Company's principal long-lived asset
as  of  December  31,  2001  is goodwill. The Company evaluates its goodwill for
impairment  on  an  ongoing  basis,  primarily by comparing the present value of
estimated  future  cash  flows related to the goodwill to the carrying amount of
the  goodwill. See Note 5 for a discussion of impairment charges with respect to
certain  long-lived  assets.


                                      F-8
<PAGE>
RECOGNITION  OF  PREMIUM  REVENUE  AND  COMMISSION  EXPENSE

Premium  revenue  is  recognized  in  the period during which dental coverage is
provided to the covered individuals. Payments received from customers in advance
of the related period of coverage are reflected on the accompanying consolidated
balance  sheet  as  deferred  revenue.

In connection with its acquisition of new customers, the Company pays broker and
consultant  commissions  based on a percentage of premium revenue collected. The
Company  also  pays  internal  sales  commissions,  some of which are based on a
percentage of premium revenue collected, and some of which consist of a one-time
payment at the beginning of a customer contract. Commissions that are based on a
percentage of premium revenue collected are recognized as expenses in the period
in which the related premium revenue is recognized.  Commissions that consist of
a  one-time  payment  at  the beginning of a customer contract are recognized as
expenses  at  the  beginning of the related customer contract. As stated in SFAS
No.  60,  "Accounting and Reporting by Insurance Companies," commissions related
to  insurance  contracts  should  be capitalized and charged to expense over the
term  of  the customer contract, in proportion to premium revenue recognized. In
the  case  of  the  PPO/indemnity  insurance policies issued by the Company, the
customers have the ability to cancel the policy at any time with 30 days advance
written  notice.  Because  of  this  ability,  one-time  commissions paid at the
beginning  of a customer contract are charged to expense at the beginning of the
related  customer  contract.

RECOGNITION  OF  HEALTH  CARE  SERVICES  EXPENSE

Capitation  payments  to  providers  are  recognized as expense in the period in
which  the  providers are obligated to deliver the related health care services.
Other  payments for health care services are recognized as expense in the period
in  which  the  services  are  delivered.

The  estimated liability for claims payable and claims incurred but not reported
is  based  primarily  on  the  average  historical  lag time between the date of
service  and  the  date the related claim is paid by the Company, as well as the
recent  trend in the aggregate amount of incurred claims per covered individual.
Since  the  liability for claims payable and claims incurred but not reported is
necessarily  an  actuarial  estimate,  the  amount of claims eventually paid for
services  provided  prior  to  the  balance  sheet  date  could  differ from the
estimated  liability.  Any  such  differences  are  included in the consolidated
statement  of operations for the period in which the differences are identified.

ADMINISTRATIVE  SERVICES  ARRANGEMENTS

The Company processed approximately $3.2 million, $3.2 million, and $2.0 million
of  dental  claims  under administrative services only ("ASO") agreements during
the  years  ended  December  31, 2001, 2000 and 1999, respectively.  The revenue
recognized  by  the  Company  from  ASO agreements consists only of the ASO fees
received  from  its  clients,  and the claims processed by the Company under ASO
agreements  are  not  included  in  the  accompanying consolidated statements of
operations.

STOCK-BASED  COMPENSATION

SFAS  No.  123,  "Accounting for Stock-Based Compensation," provides a choice of
two different methods of accounting for stock options granted to employees. SFAS
No.  123  encourages,  but  does not require, entities to recognize compensation
expense  equal  to  the fair value of employee stock options granted. Under this
method  of accounting, the fair value of a stock option is measured at the grant
date,  and  compensation  expense is recognized over the period during which the
stock option becomes exercisable. Alternatively, an entity may choose to use the
accounting  method  described in Accounting Principles Board Opinion ("APB") No.
25,  "Accounting  for  Stock  Issued  to  Employees."  Under  APB  No.  25,  no
compensation  expense  is  generally recognized as long as the exercise price of
each  stock option is at least equal to the market price of the underlying stock
at  the  time  of  the  grant. If an entity chooses to use the accounting method
described  in  APB  No.  25,  SFAS No. 123 requires that the pro forma effect of
using  the  fair  value method of accounting on its net income be disclosed in a
note  to  the financial statements. The Company has chosen to use the accounting
method  described  in  APB No. 25. See Note 11 for the pro forma effect of using
the  fair  value  method  of  accounting  for  stock  options.


                                      F-9
<PAGE>
INCOME  TAXES

The  Company's  accounting  for income taxes is in accordance with SFAS No. 109,
"Accounting for Income Taxes." SFAS No. 109 requires the recognition of deferred
tax  liabilities  and  assets for the expected future tax consequences of events
that  are  recognized  in  the  Company's  consolidated  financial statements in
different periods than those in which the events are recognized in the Company's
tax  returns. The measurement of deferred tax liabilities and assets is based on
current  tax  laws as of the balance sheet date. The Company records a valuation
allowance  related  to  deferred tax assets in the event that available evidence
indicates  that  the  future tax benefits related to the deferred tax assets may
not  be  realized. A valuation allowance is required when it is more likely than
not  that  the  deferred  tax  assets  will  not  be  realized.

RELATED  PARTY  TRANSACTIONS

The Company paid $200,000 and $117,000 of consulting fees to the chairman of its
board  of  directors  during  the  years  ended  December  31,  2001  and  2000,
respectively.  See  Note  7  for  information  regarding the $8.0 million senior
investor  loan.

USE  OF  ESTIMATES  IN  FINANCIAL  STATEMENTS

The preparation of financial statements in conformity with accounting principles
generally  accepted  in the United States of America requires management to make
estimates  and  assumptions  that  affect  the  reported  amounts  of assets and
liabilities,  the  disclosure  of  contingent  assets  and  liabilities, and the
reported  amounts  of  revenues  and  expenses. Actual results could differ from
those  estimates.

INCOME  (LOSS)  PER  SHARE

Income  (loss) per share is presented in accordance with SFAS No. 128, "Earnings
Per  Share."  Basic  earnings  (loss) per share is based on the weighted average
common  shares  outstanding,  including  the  common  shares  into  which  the
convertible  preferred  stock  is convertible, but excluding the effect of other
potentially  dilutive  securities. The number of basic common shares outstanding
includes  the  common  share  equivalents  of  the  convertible preferred stock,
because  the  Company  believes  the  convertible preferred stock is essentially
equivalent  to  common  stock,  based  on all the rights and preferences of both
types  of  stock.  Diluted  earnings  (loss)  per share is based on the weighted
average  common  shares  outstanding,  including  the  effect of all potentially
dilutive  securities.  During  the  three  years  ended  December  31, 2001, the
potentially  dilutive  securities of the Company that were outstanding consisted
entirely  of  stock  options and warrants. Due to net losses incurred in the two
years  ended December 31, 2000, the outstanding stock options and warrants would
have  an  anti-dilutive effect on diluted loss per share in each of these years.
Accordingly,  stock  options  and  warrants are excluded from the calculation of
diluted loss per share for each of these years. Therefore, the Company's diluted
loss  per  share is the same as its basic loss per share for the two years ended
December  31,  2000.

RECENT  ACCOUNTING  PRONOUNCEMENTS

In September 2000, the Financial Accounting Standards Board ("FASB") issued SFAS
No.  140,  "Accounting  for  Transfers  and  Servicing  of  Financial Assets and
Extinguishments  of  Liabilities." SFAS No. 140 replaces SFAS No. 125, which has
the  same  title,  revises  the  accounting  and  reporting  standards  for
securitizations  and  other  transfers  of  assets,  and  expands the disclosure
requirements for such transactions. Under SFAS No. 140, consistent standards are
provided  for  distinguishing  transfers of financial assets that are sales from
transfers  that are secured borrowings.  The accounting requirements of SFAS No.
140  are  effective  for  transfers  and  servicing  of  financial  assets  and
extinguishments  of  liabilities  that  occur  after March 31, 2001, and must be
applied prospectively. The adoption of SFAS No. 140 had no significant effect on
the  Company's  consolidated  financial  statements.

In  July  2001,  the FASB issued SFAS No. 141, "Business Combinations." SFAS No.
141  requires  the  purchase  method  of  accounting to be used for all business
combinations  initiated  after  June  30,  2001,  and  eliminates  the
pooling-of-interests  method  of accounting. The adoption of SFAS No. 141 had no
significant  effect  on  the  Company's  consolidated  financial  statements.


                                      F-10
<PAGE>
In  July  2001,  the  FASB  issued  SFAS  No.  142, which requires that goodwill
established  after  June  30,  2001,  not be amortized, and that amortization of
goodwill  that existed as of June 30, 2001, be ceased effective January 1, 2002.
SFAS  No.  142  also  requires  that  all  goodwill  be  evaluated  for possible
impairment  as of the end of each reporting period, and establishes a new method
of  testing  for  possible  impairment.  SFAS No. 142 is effective on January 1,
2002,  and as a result, the Company's goodwill amortization will cease effective
January  1,  2002. The Company recorded $234,000 of amortization expense related
to  goodwill  and  identifiable intangible assets during the year ended December
31,  2001.  The Company is currently evaluating whether the adoption of SFAS No.
142  will  have  any  other  significant  effects  on its consolidated financial
statements.

In  August  2001,  the  FASB  issued  SFAS  No. 143, "Accounting for Obligations
Associated  with  the Retirement of Long-Lived Assets." SFAS No. 143 establishes
accounting  and  reporting  standards  for the recognition and measurement of an
asset  retirement  obligation and the associated asset retirement cost. SFAS No.
143  is  effective  for  fiscal years beginning after June 15, 2002. The Company
does  not believe the adoption of SFAS No. 143 will have a significant effect on
its  consolidated  financial  statements.

In October 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or
Disposal  of  Long-Lived  Assets."  SFAS  No.  144  supersedes  SFAS  No.  121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be  Disposed  Of,"  and  APB  No.  30,  "Reporting  the  Results of Operations -
Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary,
Unusual,  and  Infrequently  Occurring  Events  and  Transactions." SFAS No. 144
establishes accounting and reporting standards for the impairment or disposal of
long-lived  assets,  and  for  reporting the results of discontinued operations.
SFAS  No.  144  is effective for fiscal years beginning after December 15, 2001.
The  Company  does  not  believe  the  adoption  of  SFAS  No.  144  will have a
significant  effect  on  its  consolidated  financial  statements.

RECLASSIFICATION

Certain  amounts  in  the  financial  statements  for  prior  years  have  been
reclassified  to  conform  to  the  current  year  presentation.

NOTE  2.  DISCONTINUED  OPERATIONS
----------------------------------

ACCOUNTING  TREATMENT  OF  CERTAIN  SALE  TRANSACTIONS

The  Company sold all of its general dental practices in 1996 and 1997, and sold
all  of  its  orthodontic  practices  in  1998.  Certain  of  the general dental
practices  and  all of the orthodontic practices were sold to a single purchaser
(the  "Purchaser"), in exchange for $23.0 million of long-term promissory notes.
Due  to uncertainty about the Purchaser's ability to meet its commitments to the
Company  under  the promissory notes, the Company did not treat the transactions
with  the  Purchaser  as sales for accounting purposes, notwithstanding the fact
that  these  transactions  were  legally  structured  as sales. Accordingly, the
related  promissory  notes  were  not  reflected  in  the  Company's  financial
statements.  Instead,  the  historical  cost  of  the  net assets of the related
general dental and orthodontic practices were reflected on the Company's balance
sheet,  and  were  stated  at  their  estimated  realizable value. The Company's
financial  statements  did not reflect any gains on these sale transactions, and
do  not  reflect  any  interest  income  on the related promissory notes. In the
opinion  of  management,  this  accounting  treatment appropriately reflects the
economic  substance  of the transactions, as distinct from the legal form of the
transactions.  The  Company  recorded impairment charges with respect to the net
assets of these dental and orthodontic practices in both 2000 and 1999 (see Note
5).

SALE  OF  DISCONTINUED  OPERATIONS  TO  NEW  PURCHASER

The  Purchaser  ultimately  defaulted  on its obligations to the Company, and in
October 2000, the Company completed a transaction with the Purchaser and another
third party (the "New Purchaser"), in which the practices originally sold to the
Purchaser  were  sold  to  the New Purchaser. In this transaction, the Purchaser
transferred  its  interest  in  the  dental and orthodontic practices to the New
Purchaser,  the  New  Purchaser  paid  $2.4 million to the Company and placed an
additional $1.5 million in an escrow account for the benefit of the Company, and
the  Company agreed to pay certain obligations related to these practices. These
obligations  consisted  primarily  of  payroll, dental office lease obligations,
patient  refunds,  and the obligation to complete the orthodontic treatments for
dental  HMO  patients  who  previously  paid  for  the treatments in full. These


                                      F-11
<PAGE>
obligations  had  to  be  paid  in  order  to  complete  the  transaction,  were
obligations  of the Company as the member's dental HMO plan, or were obligations
for  which  the  Company  could  have  been  contingently  liable  in any event.

As  of December 31, 2001, the Company has collected a substantial portion of the
escrow  account,  and  has  satisfied  a  substantial portion of the obligations
described above. However, the remaining amount of the escrow account that may be
realized by the Company, and the ultimate cost of the obligations assumed by the
Company  are  subject  to  various  uncertainties,  and  are  reflected  on  the
accompanying  consolidated  balance sheet based on the Company's best estimates.
This  transaction  resulted  in a $2.5 million charge to earnings during 2000 to
reduce  the  carrying  value  of  the  net  assets of the dental and orthodontic
practices  to  their estimated realizable value.  See Note 5 for a discussion of
impairment charges that were recognized in 2000 and 1999 in connection with this
transaction.

NOTE  3.  INVESTMENTS
---------------------

Gross  realized  gains  on  sales  of  investments  were  $101,000, $19,000, and
$2,051,000  for the years ended December 31, 2001, 2000, and 1999, respectively.
Gross  realized  losses  on sales of investments were zero, $1,000, and $851,000
for  the  years  ended  December  31,  2001,  2000,  and 1999, respectively. The
historical  cost of specific securities sold is used to compute the gain or loss
on the sale of investments. At December 31, 2001, the Company had net unrealized
gains  of  $63,000,  which is included in stockholders' equity under the caption
"Accumulated  other  comprehensive  income."

The  Company's  investments  as  of  December  31, 2001 are summarized below (in
thousands):

<TABLE>
<CAPTION>
                                                              COST/                                 ESTIMATED
                                                            AMORTIZED     UNREALIZED    UNREALIZED    FAIR
                                                               COST         GAINS         LOSSES      VALUE
                                                           ------------  ------------  ------------  -------
<S>                                                        <C>           <C>           <C>           <C>
  Classified as available-for-sale:
    U.S. government and its agencies                       $     2,757   $        57   $        (2)  $ 2,812
    State and municipal obligations                                255             8            --       263
    Other marketable debt securities                            13,712            --            --    13,712
                                                           ------------  ------------  ------------  -------

      Total available-for-sale                             $    16,724   $        65   $        (2)  $16,787
                                                           ============  ============  ============  =======

The  maturity  dates  of  the  Company's investments as of December 31, 2001 are
summarized  below  (in  thousands):

                                                              COST/       ESTIMATED
                                                            AMORTIZED       FAIR
                                                               COST         VALUE
                                                           ------------  ------------
  Classified as available-for-sale:
    Due in 2002                                            $    14,195   $    14,204
    Due in 2003                                                  1,306         1,345
    Due in 2004 and thereafter                                   1,223         1,238
                                                           ------------  ------------

      Total available-for-sale                             $    16,724   $    16,787
                                                           ============  ============

The  Company's  investments  as  of  December  31, 2000 are summarized below (in
thousands).

                                                              COST/                                 ESTIMATED
                                                            AMORTIZED     UNREALIZED    UNREALIZED    FAIR
                                                               COST         GAINS         LOSSES      VALUE
                                                           ------------  ------------  ------------  -------
  Classified as available-for-sale:
  U.S. government and its agencies                         $    14,472   $        80   $        (1)  $14,551
  State and municipal obligations                                  996            41            --     1,037
  Other marketable debt securities                               2,434            --            (1)    2,433
                                                           ------------  ------------  ------------  -------

  Total available-for-sale                                 $    17,902   $       121   $        (2)  $18,021
                                                           ============  ============  ============  =======
</TABLE>


                                      F-12
<PAGE>
NOTE 4.  PROPERTY AND EQUIPMENT
-------------------------------

The  Company's  property and equipment consists of the following (in thousands):

<TABLE>
<CAPTION>
                                                                  DECEMBER 31,
                                                           --------------------------
                                                               2001          2000
                                                           ------------  ------------
<S>                                                        <C>           <C>
  Leasehold improvements                                   $       841           811
  Furniture, fixtures and other equipment                       11,161        10,082
                                                           ------------  ------------
  Total, at cost                                                12,002        10,893
  Less - accumulated depreciation and amortization              (9,654)       (8,050)
                                                           ------------  ------------

  Total, net of accumulated depreciation and amortization  $     2,348   $     2,843
                                                           ============  ============
</TABLE>

NOTE  5.  IMPAIRMENT  OF  ASSETS
--------------------------------

ASSETS  OF  DISCONTINUED  OPERATIONS  TRANSFERRED UNDER CONTRACTUAL ARRANGEMENTS

Assets  of  discontinued  operations  transferred under contractual arrangements
consists  of  the  historical  cost  of the net assets of certain general dental
practices  and  certain  orthodontic  practices that were sold by the Company in
1998  and  1997 (see Note 2). During 1999, the Company reached an oral agreement
with  the purchaser of those practices (the "Purchaser") and another third party
(the  "New  Purchaser"), under which the related promissory notes payable to the
Company  (the "Notes") would be liquidated.  Under this agreement, the Purchaser
would  convey the dental and orthodontic practices that comprised the collateral
for  the Notes to the New Purchaser, in exchange for proceeds that would be paid
to  the Company in satisfaction of the Notes.  Based on this oral agreement, the
Company recorded a $4.4 million charge to earnings (net of income tax benefit of
$2.1  million) during 1999 to reduce the carrying value of the net assets of the
dental  and  orthodontic  practices  to  their  estimated realizable value. This
charge  is reflected on the Company's consolidated statement of operations under
the  caption  "Loss  from  assets  transferred  under contractual arrangements."

In  March  2000  the Company entered into a definitive agreement with respect to
the  transaction  described above. In September 2000, the Company entered into a
restructured  agreement  with  respect to this transaction, which superseded the
previous agreement. Based on the terms of the restructured agreement, and on the
related  transaction  that was completed in October 2000, the Company recorded a
$2.5  million charge to earnings during 2000 to reduce the carrying value of the
net  assets  of  the dental and orthodontic practices to their revised estimated
realizable  value.  This  charge  is  reflected  on  the  Company's consolidated
statement  of  operations  under the caption "Loss from assets transferred under
contractual  arrangements."

NOTES  RECEIVABLE

The  Company's  notes  receivable  consist  of  promissory  notes  issued by the
purchasers  of  certain general dental practices sold by the Company in 1996 and
1997,  and  are  related  to  dental  practices  other  than  those  sold to the
Purchaser,  as  discussed  in Note 2. The Company reviews the carrying amount of
its  notes  receivable for possible impairment on an ongoing basis, based on the
estimated  collectibility  of  the notes. During 2000, the Company increased the
reserve  on  its  notes  receivable by recording an impairment loss of $450,000,
based on the recent payment history of the notes, its estimate of the ability of
the  issuers  to repay the notes, its estimate of the financial condition of the
dental practices that comprise the collateral for the notes, and its estimate of
the  value  of  the  assets  of  those  practices.  There was no impairment loss
recorded  during  2001.  As of December 31, 2001, the net carrying amount of the
outstanding  notes  receivable  was  $805,000,  which  is based on the Company's
estimate  of  the  net  realizable  value  of  the  promissory  notes.


                                      F-13
<PAGE>
INTANGIBLE  ASSETS

Management  reviews  for  impairment  of  intangible assets that are used in the
Company's  operations  on  a  periodic  basis  in  accordance  with  APB No. 17,
"Intangible  Assets."  Management  deems  a  group  of  assets to be impaired if
estimated  discounted future cash flows are less than the carrying amount of the
assets.  Estimates of future cash flows are based on management's best estimates
of  anticipated  operating results over the remaining useful life of the assets.

During  1999, the Company recognized impairment losses of $24.6 million based on
estimated  discounted  cash  flows  to  be  generated  by  each of the Company's
intangible  assets.  The  impairment was recognized with respect to the goodwill
and  non-compete covenant related to the acquisition of a Texas-based dental HMO
in September 1996 ($14.7 million), the goodwill and non-compete covenant related
to the acquisition of a Florida-based dental HMO in May 1997 ($9.3 million), and
the  insurance  license  acquisition  costs  related  to the acquisitions of two
insurance  companies  in  1997  and 1992 ($0.6 million). There was no impairment
loss  recorded  with  respect  to intangible assets during 2001 or 2000, and the
Company  believes there is no impairment of its intangible assets as of December
31,  2001.

NOTE  6.  CLAIMS  PAYABLE  AND  CLAIMS  INCURRED  BUT  NOT  REPORTED
--------------------------------------------------------------------

The  Company is responsible for paying claims submitted by dentists for services
provided  to  patients  who have purchased dental coverage from the Company. The
liability for claims payable and claims incurred but not reported is an estimate
of the claims for services delivered prior to the balance sheet date, which have
not  yet  been paid by the Company as of the balance sheet date. The estimate of
claims  payable  and  claims incurred but not reported is based primarily on the
average historical lag time between the date of service and the date the related
claim  is  paid  by  the  Company,  as well as the recent trend in the aggregate
amount of incurred claims per covered individual. Since the liability for claims
payable  and  claims  incurred  but  not  reported  is  necessarily an actuarial
estimate,  the  amount  of claims eventually paid for services provided prior to
the  balance  sheet  date  could  differ  from the estimated liability. Any such
differences  are  included  in  the consolidated statement of operations for the
period  in  which  the  differences  are  identified.

The amounts included in the liability for claims payable and claims incurred but
not  reported in the accompanying consolidated financial statements are the same
as  the  amounts  included  in the statutory financial statements that are filed
with  various  state  regulators  by  the  Company's  subsidiaries.


                                      F-14
<PAGE>
PPO/indemnity  claims  are  related to services delivered to individuals covered
under  dental  indemnity  plan  designs,  some  of  which contain a PPO feature.
Specialist  referral  claims  are  related  to  specialist services delivered to
individuals  covered  under dental HMO plan designs. Other claims are related to
primary  care  dental services delivered to individuals covered under dental HMO
plan  designs. A summary of the activity in the liability for each type of claim
is  shown  below  (in  thousands).

                                               DENTAL HMO
                                           --------------------
                                  PPO/     SPECIALIST
                               INDEMNITY    REFERRAL    OTHER
                                CLAIMS       CLAIMS     CLAIMS     TOTAL
                              -----------  ----------  --------  ---------

Balance at January 1, 2000    $    5,807   $   1,988   $   851   $  8,646

Incurred claims related to:
  Current year - 2000             24,747       6,971     4,634     36,352
  Prior years                        226        (351)     (122)      (247)
Paid claims related to:
  Current year - 2000            (18,969)     (5,823)   (4,006)   (28,798)
  Prior years                     (6,033)     (1,637)     (729)    (8,399)
                              -----------  ----------  --------  ---------

Balance at December 31, 2000       5,778       1,148       628      7,554

Incurred claims related to:
  Current year - 2001             23,582       6,047     4,161     33,790
  Prior years                       (834)       (138)     (204)    (1,176)
Paid claims related to:
  Current year - 2001            (19,330)     (4,955)   (3,600)   (27,885)
  Prior years                     (4,944)     (1,010)     (424)    (6,378)
                              -----------  ----------  --------  ---------

Balance at December 31, 2001  $    4,252   $   1,092   $   561   $  5,905
                              ===========  ==========  ========  =========

The  liability  for  claims  payable  and  claims  incurred  but not reported is
adjusted  each  year to reflect any differences between claims actually paid and
previous estimates of the liability. During each of the years ended December 31,
2001  and  2000,  the  aggregate  adjustments  to the liability to reflect these
differences,  which  are  reflected  in  the  above  table,  were  not material.

NOTE  7.  NOTES  PAYABLE  AND  LONG-TERM  DEBT
----------------------------------------------

Notes  payable  and  long-term  debt  consisted of the following (in thousands):

                               DECEMBER 31,
                             -----------------
                              2001     2000
                             ------  ---------

  Investor senior loan       $  --   $  8,000
  Revolving credit facility     --      7,045
  Senior notes payable          --     32,500
  Other                        265        500
                             ------  ---------
    Total debt                 265     48,045
  Less - short-term portion   (265)   (47,780)
                             ------  ---------

  Long-term debt             $  --   $    265
                             ======  =========

On  March  1, 2000, the Company entered into a recapitalization transaction with
an  investor  group (the "Investors"), the revolving credit facility lender (the
"Bank"),  and the holder of the senior notes payable (the "Senior Note Holder").
In  this  transaction,  the  Investors loaned $8.0 million to the Company in the
form  of  an  investor  senior  loan,  due  April  30,  2001.  As  part  of this
transaction,  the  Investors,  the  Bank,  and  the Senior Note Holder agreed to
convert  the  $8.0 million investor senior loan, the outstanding balance of $7.0
million under the revolving credit facility plus accrued interest, and the $32.5


                                      F-15
<PAGE>
million  of senior notes payable plus accrued interest, to convertible preferred
stock,  subject  to regulatory approval and an increase in the authorized shares
of  the  Company's  common  stock.

Effective  as  of  January 31, 2001, the Company completed the conversion of the
investor senior loan ($8.0 million), the outstanding balance under the revolving
credit  facility  ($7.0  million), the senior notes payable ($32.5 million), and
the  accrued  interest  on  the  revolving  credit facility and the senior notes
payable  ($5.3  million) into 300,000 shares of convertible preferred stock. The
estimated  value  of the convertible preferred stock was $137.50 per share as of
January  31,  2001,  which is based on the closing price of the Company's common
stock  on  January  31, 2001, which was $1.375 per share, and the fact that each
share  of  convertible  preferred stock is convertible into 100 shares of common
stock.  Based  on this estimated value, the conversion transaction resulted in a
pre-tax  gain  of  $11.3  million,  which  is  net  of approximately $350,000 of
transaction  costs.  There was no income tax effect related to this transaction,
due  to  the  Company's  net  operating loss carry-forwards for tax purposes, as
discussed  in  Note 9. The Company's deferred tax asset related to net operating
loss  carryforwards  is  fully  reserved,  due  to uncertainty about whether the
deferred  tax  assets  will  be  realized in the future, as discussed in Note 9.

See Note 11 for a description of the convertible preferred stock. As a result of
the  conversion  transaction,  the ownership interest of the previously existing
common  stockholders  of  the  Company  was  reduced to approximately 14% of the
common  stock  interests  of  the Company. In March 2000, in connection with the
recapitalization  transaction,  the  Company agreed to place four new directors,
who  represented  the  Investors,  the  Bank, and the Senior Note Holder, on its
board  of  directors. Three of those directors were placed on the board in March
2000, and the fourth director was placed on the board as of January 31, 2001, at
which  time  the  Bank  sold  its  interest  in  the  Company  to other existing
stockholders.  These  four  new  directors constitute a majority of the board of
directors,  which  currently  has  a  total  of  seven  members.

In  1999,  in  connection  with a restructuring of the senior notes payable, the
Company issued warrants to purchase 382,000 shares of its common stock for $4.51
per  share  to the Senior Note Holder. The Company estimated that the fair value
of  these  warrants was $320,000, based on an option-pricing model. Accordingly,
this  amount  was charged to interest expense and credited to additional paid-in
capital  during  1999.  The  warrants were cancelled without being exercised, in
connection  with  the  conversion  of  the senior notes payable into convertible
preferred  stock  effective  January  31,  2001. Accordingly, the estimated fair
value  of  the  warrants,  which was $320,000, was debited to additional paid-in
capital  and  credited  to  retained  earnings  during  2001.

NOTE  8.  OTHER  LONG-TERM  LIABILITIES
---------------------------------------

Other long-term liabilities consist primarily of accrued rent expense related to
an  office lease with monthly payments that increase over the term of the lease,
deferred  compensation  payments  to  a  former employee of a dental HMO company
acquired  by the Company in 1996, accrued lease obligations related to equipment
that  is  no  longer  used  by  the  Company, and security deposits collected in
connection  with  subleases.

Annual  maturities of other long-term liabilities are as follows, as of December
31,  2001  (in  thousands):

                  2003                                 $  199
                  2004                                    208
                  2005                                    192
                  2006                                    192
                  Thereafter                              180
                                                       ------

                    Total other long-term liabilities  $  971
                                                       ======


                                      F-16
<PAGE>
NOTE  9.  INCOME  TAXES
-----------------------

The  Company's  federal and state income tax expense (benefit) is as follows (in
thousands):

<TABLE>
<CAPTION>
                                                             YEARS ENDED DECEMBER 31,
                                                             ------------------------
                                                              2001    2000    1999
                                                             ------  ------  --------
<S>                                                          <C>     <C>     <C>
  Income tax expense from continuing operations:
    Current payable - Federal                                $   --  $   --  $   648
                      State                                      --      --      358
  Deferred -  Federal                                            --      --    6,613
              State                                              --      --    3,315
                                                             ------  ------  --------
  Income tax expense from continuing operations                  --      --   10,934
  Income tax expense (benefit) from discontinued operations      --      --   (2,087)
                                                             ------  ------  --------

    Total income tax expense                                 $   --  $  --   $ 8,847
                                                             ======  ======  ========
</TABLE>

A  reconciliation  of the expected federal income tax expense (benefit) based on
the  statutory  rate  to  the  actual income tax expense (benefit) on the income
(loss)  from  continuing  operations  is  as  follows  (in  thousands):

<TABLE>
<CAPTION>
                                                     YEARS ENDED DECEMBER 31,
                                    ---------------------------------------------------------
                                           2001               2000               1999
                                    -----------------  -----------------  -------------------
                                     AMOUNT      %      AMOUNT      %      AMOUNT       %
                                    ---------  ------  --------  -------  ---------  -------
<S>                                 <C>        <C>     <C>       <C>      <C>        <C>
Expected federal income tax
  expense (benefit)                 $  4,266    34.0%  $(2,194)  (34.0)%  $(12,491)  (34.0)%
State income tax expense
  (benefit), net of effect
  on federal income tax                   --      --        --        --     1,903      5.2
Goodwill amortization
  and impairments                         35     0.3        42       0.7     8,190     22.3
Other items                              855     6.8        46       0.7       451      1.2
Expiration of net operating
  losses due to change of control      6,774    54.0        --        --        --       --
Change in valuation allowance        (11,930)  (95.1)    2,106      32.6    12,881     35.1
                                    ---------  ------  --------  -------  ---------  -------

Actual income tax expense           $     --      --%  $    --       --%  $ 10,934     29.8%
                                    =========  ======  ========  =======  =========  =======
</TABLE>


                                      F-17
<PAGE>
Deferred  tax  assets  and  liabilities  are  related to the following items (in
thousands):

<TABLE>
<CAPTION>
                                                             DECEMBER 31,
                                                         -------------------
                                                           2001      2000
                                                         --------  ---------
<S>                                                      <C>       <C>
  Deferred tax assets:
    Net operating loss carryforward                      $ 3,567   $ 13,651
    Depreciation and amortization                          2,053      3,384
    Accrued expenses                                       1,121      1,965
    Capital loss carryforward                                643         --
    Bad debt reserves on notes receivable                    219      1,263
    Bad debt allowance on accounts receivable                218        378
    Other                                                    111         42
                                                         --------  ---------
      Total deferred tax assets                            7,932     20,683

  Deferred tax liabilities:
    State income taxes                                       910        958
    Prepaid expenses                                         280        211
    Gain on sale of dental offices                            56        898
                                                         --------  ---------
      Total deferred tax liabilities                       1,246      2,067
                                                         --------  ---------

  Net deferred tax assets                                  6,686     18,616
    Valuation allowance                                   (6,686)   (18,616)
                                                         --------  ---------

      Net deferred tax assets after valuation allowance  $    --   $     --
                                                         ========  =========
</TABLE>

The  income  tax expense recorded by the Company for the year ended December 31,
2001,  includes  an  adjustment  to decrease the valuation allowance against its
deferred tax assets. The income tax expense recorded for the year ended December
31, 2000, includes an adjustment to increase the valuation allowance against its
deferred  tax  assets.  The  Company's  net deferred tax assets, which were $6.7
million  and  $18.6 million as of December 31, 2001 and 2000, respectively, have
been  fully  reserved since September 30, 1999, due to uncertainty about whether
those  net  assets  will be realized in the future. The uncertainty is primarily
due  to  operating losses incurred by the Company during each of the three years
ended  December  31,  2000,  and the existence of significant net operating loss
carryforwards.  The  Company's  deferred  tax assets remain fully reserved as of
December  31,  2001,  for  the  same  reasons.

Due  to  the conversion of outstanding debt into convertible preferred stock, as
described in Note 7, there was a "change of control" of the Company for purposes
of  Internal  Revenue Code Section 382, effective January 31, 2001. As a result,
effective  January  31,  2001,  the  amount  of  pre-existing net operating loss
carryforwards that can be used to offset current taxable income on the Company's
federal  income  tax return is limited to approximately $350,000 per year. As of
December  31, 2001, the Company had net operating loss carryforwards for federal
and  state  tax  purposes  of  approximately  $9.0  million  and  $8.1  million,
respectively,  which  are  net of the amounts that will expire unused due to the
change  of  control  limitation.  The  federal  and  state  net  operating  loss
carryforwards  will  begin  to  expire  in  2018  and  2003,  respectively.


                                      F-18
<PAGE>
NOTE  10.  COMMITMENTS  AND  CONTINGENCIES
------------------------------------------

LEASE  COMMITMENTS

The  Company  leases  administrative  office  space and office equipment under a
number  of  operating  leases.  Rent  expense  was  $3,465,000,  $3,986,000, and
$4,289,000  in  2001,  2000,  and  1999, respectively. The Company has subleased
certain  of  its  office space to unrelated third parties, which office space is
subject to lease agreements for which the Company remains contingently liable in
the  event the sublessees fail to make the lease payments. Future minimum rental
payments  required  under non-cancelable operating leases are as follows, net of
payments  expected  to  be  received  pursuant  to  subleases  (in  thousands):

<TABLE>
<CAPTION>
                               TOTAL      EXPECTED       NET
                               LEASE      SUBLEASE   CONTINGENT
                            OBLIGATION    PAYMENTS   OBLIGATION
                            -----------  ----------  -----------
<S>                         <C>          <C>         <C>
  2002                      $     2,830  $    (278)  $     2,552
  2003                            2,155       (130)        2,025
  2004                            2,034        (43)        1,991
  2005                            1,850         --         1,850
  2006                            1,838         --         1,838
  Thereafter                      3,064         --         3,064
                            -----------  ----------  -----------

    Total minimum payments  $    13,771  $    (451)  $    13,320
                            ===========  ==========  ===========
</TABLE>

The  Company  has  accrued  all  of the future lease payments related to certain
leases for equipment that is no longer used by the Company. The Company has also
accrued  the  excess  of  the  future lease payments for office space that is no
longer  used  by  the  Company, over the expected future collections of sublease
payments  related to that office space. The future lease payments that have been
accrued  are  not  included in the above summary of operating lease commitments.

LITIGATION

The  Company  is  subject  to  various  claims  and legal actions arising in the
ordinary  course of business. The Company believes all pending claims either are
covered  by  liability insurance maintained by the Company or by dentists in the
Company's  provider  network,  or will not have a material adverse effect on the
Company's  consolidated financial position or results of operations. In December
1999,  a  stockholder  lawsuit against the Company was filed, which alleged that
the  Company  and  certain  of  its officers violated certain securities laws by
issuing  a  series  of  alleged  false  and misleading statements concerning the
Company's  publicly  reported  revenues  and  earnings  during a specified class
period.  On  September  12, 2000, after the plaintiffs had filed a first amended
complaint,  the  Federal  District  Trial  Court  dismissed  the  lawsuit  with
prejudice,  stating  that the plaintiffs had failed to state a claim against the
Company  and its officers. On October 6, 2000, the plaintiffs filed an appeal of
the  dismissal  of the lawsuit, and the dismissal was overturned on February 22,
2002.  The  case  was  remanded  back to the District Court with instructions to
allow  the  plaintiff  to  file  a  second  amended  complaint.  The Company has
directors and officers liability insurance, and intends to vigorously defend any
second  amended  complaint that may be filed by the plaintiff. In the opinion of
management,  the  ultimate  outcome  of this litigation will not have a material
adverse  effect  on  the Company's consolidated financial position or results of
operations.

CONTINGENT  LEASE  OBLIGATIONS

The  Company  sold all of its general dental practices and orthodontic practices
in 1996, 1997 and 1998, as discussed in Note 2. The Company also re-sold certain
of  these practices in October 2000, after the original purchaser of a number of
these  practices  defaulted  on  its obligations to the Company, as discussed in
Note  2.  In connection with the sale and re-sale of those practices, all of the
office  lease  agreements  related  to those practices have been assigned to the
respective  purchasers  of those practices, except for three of the leases.  The
Company  is  currently in the process of obtaining assignments for the remaining
three  leases,  although there can be no assurance that it will be successful in
doing  so.


                                      F-19
<PAGE>
In  the  case  of the assigned leases, the Company is secondarily liable for the
lease  payments  in the event the purchasers of those practices fail to make the
payments.  As  of  December  31,  2001, the total of the minimum annual payments
under  these leases was approximately $1.5 million, and the aggregate contingent
liability  of the Company related to these leases was approximately $4.4 million
over  the  terms  of the lease agreements, which expire at various dates through
2007.  Management  has not been notified of any defaults under these leases that
would  materially  affect  the  Company's  consolidated  financial position. The
aggregate  contingent  lease  obligation  of  $4.4  million excludes $175,000 of
estimated  lease obligations that have been accrued as of December 31, 2001, due
to an expected failure by one of the entities to make the lease payments under a
lease  that  was  assigned  to  that entity by the Company. This estimated lease
obligation  is included in the accompanying consolidated balance sheet under the
caption  "Other  accrued  expenses."

The  Company  remains  primarily liable for the three lease agreements that have
not  yet  been  assigned,  although the purchasers of the related practices have
agreed  to  make  all  of  the  remaining payments under those leases. The lease
commitments  related  to these three leases are included in the above summary of
lease  commitments  in  this  Note  10.

EMPLOYMENT  AGREEMENT  COMMITMENTS

The  Company  has entered into employment agreements with several members of its
management.  Under  each  of  these  employment  agreements,  if the employee is
terminated  without  cause,  the  Company would be obligated to make a severance
payment equal to between 50% and 100% of the employee's annual salary, depending
upon  the  timing  of  the  termination  in  relation  to  the expiration of the
employment  agreement.  The  total of the annual salaries under these employment
agreements  is  approximately  $1.7  million.

EMPLOYEE  RETIREMENT  PLAN

The  Company  maintains  a  retirement plan under Section 401(k) of the Internal
Revenue  Code  (the  "Plan").  Under  the  Plan, employees are permitted to make
contributions  to  a  retirement account through payroll deductions from pre-tax
earnings.  Employees  are  fully  vested  in  contributions  made  from  payroll
deductions.  In  addition,  the  Company may, at its discretion, make additional
contributions to the Plan. The Company made $51,000 of matching contributions to
the  Plan  for the year ended December 31, 2001, in the form of 33,000 shares of
its  common  stock.  Of  the total of 33,000 shares of common stock contributed,
18,000  shares  were  contributed  in 2001, and an additional 15,000 shares were
contributed  in  2002,  the value of which is included in accrued expenses as of
December  31, 2001. Employees become vested in the matching contributions at the
rate of 20% per year during the first five years of employment with the Company,
with  employees  receiving  credit  for  past  years  of  service.  There are no
restrictions on the ability of employees to liquidate the Company's common stock
that  is credited to their account, except for vesting requirements. The Company
made  no contributions to the Plan during the two years ended December 31, 2000.

PROFESSIONAL  LIABILITY  INSURANCE

The  Company  maintains professional liability insurance that covers losses on a
claims  made  basis.

GOVERNMENT  REGULATION

The dental benefits industry is subject to extensive state and local laws, rules
and  regulations.  Each  of  the  Company's operating subsidiaries is subject to
various  requirements  imposed  by  state  laws  and  regulations related to the
operation  of  a  dental  HMO  plan or a dental insurance company, including the
maintenance  of  a  minimum  amount  of  net  worth  by certain subsidiaries. In
addition, regulations applicable to dental benefit plans could be changed in the
future.  There  can  be  no  assurance that the Company will be able to meet all
applicable  regulatory  requirements  in  the  future.

HEALTH  INSURANCE  PORTABILITY  AND  ACCOUNTABILITY  ACT  OF  1996  ("HIPAA")

HIPAA  imposes  responsibilities  on  the Company, including but not limited to,
privacy  notice  requirements  to  members  of  the Company's benefit plans, the
security and privacy of individually identifiable health information, the use of
unique identifiers for all of the contractual relationships the Company has with
members,  providers  and  group and individual contract holders, the adoption of
standardized  electronic  transaction  code sets, and prevention of unauthorized
use  or disclosure of personal data maintained by the Company. The Company is in


                                      F-20
<PAGE>
the  process  of  developing  policies  and  procedures  to  comply  with  these
requirements  and  has  provided  privacy  notices  as required by HIPAA and the
Gramm-Leach-Bliley  Act. The total cost of compliance with HIPAA is not known at
this  time.

LIABILITIES  RELATED  TO  DENTAL  AND  ORTHODONTIC  PRACTICES

The  Company  has  various  liabilities  in  connection  with  the  dental  and
orthodontic  practices  sold  in October 2000, including but not limited to, the
obligation  to  complete  orthodontic treatments for certain dental HMO patients
who  previously paid for the treatments in full. The amount of these liabilities
is  subject  to  uncertainties  and  there can be no assurance that the ultimate
amount of these liabilities will not exceed the amounts accrued on the Company's
consolidated  balance  sheet  as  of  December  31,  2001.

NOTE  11.  CAPITAL  STOCK
-------------------------

CONVERTIBLE  PREFERRED  STOCK

The  convertible  preferred  stock  does  not accrue dividends of any kind. Each
share  of  convertible  preferred stock is convertible into 100 shares of common
stock  at the option of the holder. The convertible preferred stock entitles the
holder to one vote for each share of common stock into which the preferred stock
is  convertible, with respect to all matters voted on by the common stockholders
of  the  Company,  except  for  the  election  of  directors. The holders of the
convertible  preferred  stock have the right to elect a total of five members of
the  board  of  directors, and the holders of the common stock have the right to
elect  the  remaining  two  directors. The convertible preferred stock has a $30
million  liquidation  preference  over  the  Company's  common  stock.

STOCK  REPURCHASES

As  of  December  31,  2001, the Company had 3,266,755 shares of treasury stock,
which  were  acquired  by  the  Company  for  an  aggregate of $18.1 million. In
December  2000,  the  board of directors of the Company authorized management to
repurchase  up  to  500,000 shares of the Company's outstanding common stock, of
which  10,000  shares  had  been  repurchased  as  of  December  31,  2001.

STOCKHOLDER  RIGHTS  PLAN

In  March 1996, the board of directors of the Company declared a dividend of one
right  to  purchase  a  fraction of a share of its Series A Junior Participating
Preferred  Stock,  having  rights,  preferences,  privileges and restrictions as
designated,  and  under  certain  circumstances,  other  securities,  for  each
outstanding share of the Company's common stock. The dividend was distributed to
stockholders  of  record  at the close of business on April 12, 1996. The Rights
become  exercisable  upon  the occurrence of certain defined events related to a
possible  change  of  control  of  the Company. The description and terms of the
Rights  are  set  forth  in  a  Rights Agreement, dated as of March 22, 1996, as
amended,  between  the Company and American Stock Transfer and Trust Company, as
Rights  Agent.  The  Rights  Agreement  may be amended by the Company's board of
directors  without  the approval of the Rights holders, at any time prior to the
Rights  becoming  exercisable. The Rights Agreement was amended in March 2000 to
specify  that the recapitalization transaction initiated in March 2000 would not
cause  the  Rights  to  become  exercisable.

STOCK  OPTION  PLAN

The Company has a stock option plan (the "Plan") that authorizes the granting of
both  incentive  and  non-qualified  stock  options  to purchase an aggregate of
3,000,000  shares  of  common  stock.  Either  incentive  or non-qualified stock
options may be granted to executive officers and other employees of the Company.
Only non-qualified stock options may be granted to non-employee directors of the
Company.  Under the Plan, the exercise price of any stock option granted must be
at least equal to the market value of the Company's common stock on the date the
option  is  granted. The Compensation and Stock Option Committee of the board of
directors  of  the  Company  administers  the  Plan.


                                      F-21
<PAGE>
The  following  is  a  summary  of  activity  in  stock  options:

<TABLE>
<CAPTION>
                                                                YEARS ENDED DECEMBER 31,
                                                          -----------------------------------
                                                             2001         2000        1999
                                                          -----------  -----------  ---------
<S>                                                       <C>          <C>          <C>
  Outstanding at beginning of year                         2,216,300      755,300    769,800
  Stock options granted                                      805,000    2,080,000     55,000
  Stock options exercised                                    (43,332)          --         --
  Stock options canceled                                    (363,468)    (619,000)   (69,500)
                                                          -----------  -----------  ---------

  Outstanding at end of year                               2,614,500    2,216,300    755,300
                                                          ===========  ===========  =========

  Exercisable at end of year                                 616,107      105,966    551,000

  Weighted average exercise price of options granted      $     1.26   $     1.00   $   3.72
  Weighted average exercise price of options exercised          1.00           --         --
  Weighted average exercise price of options canceled           3.81         9.96      12.70
  Weighted average exercise price of options outstanding        1.14         1.53       9.88
  Weighted average exercise price of options exercisable        1.23        10.39      10.39
</TABLE>

The following is a summary of stock options outstanding as of December 31, 2001:

<TABLE>
<CAPTION>
                   TOTAL STOCK OPTIONS OUTSTANDING         STOCK OPTIONS EXERCISABLE
               -----------------------------------------   --------------------------
RANGE OF       WEIGHTED      WEIGHTED        WEIGHTED
EXERCISE        NUMBER       AVERAGE          AVERAGE       NUMBER        AVERAGE
PRICES         OF SHARES  REMAINING LIFE  EXERCISE PRICE   OF SHARES  EXERCISE PRICE
-------------  ---------  --------------  ---------------  ---------  ---------------
<S>            <C>        <C>             <C>              <C>        <C>
1.00 - 1.50    2,600,000      8.64 years  $          1.08    601,607  $          1.00
9.00 - 11.88      13,500      3.97 years            10.62     13,500            10.62
   15.75           1,000      4.22 years            15.75      1,000            15.75
               ---------                                   ---------

   Total       2,614,500      8.61 years  $          1.14    616,107  $          1.23
               =========                                   =========
</TABLE>

The  weighted  average fair value of stock options granted was $1.13, $0.76, and
$2.73  per  share  during  the  years  ended  December 31, 2001, 2000, and 1999,
respectively. In accordance with SFAS No. 123, the following table shows the pro
forma  effect  of  using  the  fair value method of accounting for stock options
granted  to  employees  (in  thousands,  except  per  share  amounts):


                                                   YEARS ENDED DECEMBER 31,
                                                 ----------------------------
                                                  2001      2000      1999
                                                 -------  --------  ---------
  Net income (loss), as reported                 $12,546  $(8,952)  $(52,036)
  Pro forma net income (loss)                     11,713   (9,733)   (52,360)

  Diluted income (loss) per share, as reported      0.38    (1.89)    (10.96)
  Pro forma diluted income (loss) per share         0.35    (2.05)    (11.03)


SFAS  No.  123  requires  a publicly-traded entity to estimate the fair value of
stock-based  compensation  by  using  an  option-pricing  model  that takes into
account  certain  facts  and assumptions. The facts and assumptions that must be
taken  into account are the exercise price, the expected life of the option, the
current  stock  price,  the expected volatility of the stock price, the expected
dividends  on  the  stock,  and  the risk-free interest rate. The option-pricing
models  commonly  used  were  developed  to  estimate  the  fair value of freely
tradable,  fully  transferable  options  without  vesting  restrictions,  which
significantly  differ from the stock options granted by the Company. The Company
estimated  the  fair value of each stock option as of the date of grant by using
the  Black-Scholes  option-pricing  model.  The  facts  and  assumptions used to
determine the fair value of stock options granted were: an average expected life
of  four  years;  expected  volatility of 160% in 2001, 184% in 2000, and 97% in
1999; no expected dividends; and a risk-free interest rate of approximately 3.8%


                                      F-22
<PAGE>
in  2001, and 6.0% in 2000 and 1999. The assumptions regarding the expected life
of  the  options  and the expected volatility of the stock price are subjective,
and  these  assumptions  greatly  affect  the  estimated  fair  value  amounts.

NOTE  12.  INVESTMENT  AND  OTHER  INCOME
-----------------------------------------

Investment  and  other  income  consists  of  the  following  (in  thousands):

<TABLE>
<CAPTION>
                                                YEARS ENDED DECEMBER 31,
                                             -----------------------------
                                               2001      2000      1999
                                             --------  --------  ---------
<S>                                          <C>       <C>       <C>
  Net realized gains on sale of investments  $    101  $     18  $  1,200
  Interest income                                 945     1,330       932
  Other, net                                       14        83       (65)
                                             --------  --------  ---------

    Total investment and other income        $  1,060  $  1,431  $  2,067
                                             ========  ========  =========
</TABLE>


                                      F-23
<PAGE>
NOTE13.  UNAUDITED  SELECTED  QUARTERLY  INFORMATION
----------------------------------------------------

QUARTERLY  RESULTS  OF  OPERATIONS

Unaudited  quarterly results of operations for the years ended December 31, 2001
and  2000  are  shown below (in thousands, except per share data). The unaudited
quarterly  results  should  be read in conjunction with the accompanying audited
consolidated  financial  statements.

<TABLE>
<CAPTION>
                                                       YEAR ENDED DECEMBER 31, 2001
                                                ------------------------------------------
                                                  FIRST     SECOND      THIRD     FOURTH
                                                 QUARTER    QUARTER    QUARTER    QUARTER
                                                ---------  ---------  ---------  ---------
<S>                                             <C>        <C>        <C>        <C>
  Premium revenue, net                          $ 21,643   $ 21,452   $ 20,831   $ 20,896
  Health care services expense                    15,187     14,914     14,456     14,135
  Selling, general and administrative expense      6,534      6,453      6,062      6,342
                                                ---------  ---------  ---------  ---------

  Operating income (loss)                            (78)        85        313        419

  Investment and other income                        435        255        213        157
  Interest expense on debt that was
    converted to equity in 2001                     (402)        --         --         --
  Other interest expense                             (32)       (30)       (31)        (9)
                                                ---------  ---------  ---------  ---------
  Income (loss) before income taxes
    and extraordinary item                           (77)       310        495        567
  Income tax expense                                  --         --         --         --
                                                ---------  ---------  ---------  ---------

  Income (loss) before extraordinary item            (77)       310        495        567
  Extraordinary item:
    Gain on conversion of debt to
      convertible preferred stock                 11,251         --         --         --
                                                ---------  ---------  ---------  ---------

    Net income                                  $ 11,174   $    310   $    495   $    567
                                                =========  =========  =========  =========

  Basic net income per share:
    Income before extraordinary item            $     --   $   0.01   $   0.01   $   0.02
    Extraordinary item                              0.45         --         --         --
                                                ---------  ---------  ---------  ---------

    Net income                                  $   0.45   $   0.01   $   0.01   $   0.02
                                                =========  =========  =========  =========

  Weighted average basic shares outstanding       24,738     34,740     34,753     34,781

  Diluted net income per share:
    Income before extraordinary item            $     --   $   0.01   $   0.01   $   0.02
    Extraordinary item                              0.45         --         --         --
                                                ---------  ---------  ---------  ---------

    Net income                                  $   0.45   $   0.01   $   0.01   $   0.02
                                                =========  =========  =========  =========

  Weighted average diluted shares outstanding     24,738     35,502     35,542     35,564
</TABLE>


                                      F-24
<PAGE>
<TABLE>
<CAPTION>
                                                          YEAR ENDED DECEMBER 31, 2000
                                                   ------------------------------------------
                                                     FIRST     SECOND      THIRD     FOURTH
                                                    QUARTER    QUARTER    QUARTER    QUARTER
                                                   ---------  ---------  ---------  ---------
<S>                                                <C>        <C>        <C>        <C>
  Premium revenue, net                             $ 24,463   $ 24,173   $ 24,639   $ 23,976
  Health care services expense                       17,738     17,710     17,572     15,548
  Selling, general and administrative expense         8,413      7,119      7,436      8,235
  Loss on impairment of assets                           --         --         --        450
                                                   ---------  ---------  ---------  ---------

  Operating income (loss)                            (1,688)      (656)      (369)      (257)

  Investment and other income                           259        378        478        316
  Interest expense on debt that was
  converted to equity in 2001                        (1,015)    (1,202)    (1,287)    (1,297)
  Other interest expense                                (17)       (18)       (53)       (24)
                                                   ---------  ---------  ---------  ---------
  Income (loss) before income taxes and
    discontinued operations                          (2,461)    (1,498)    (1,231)    (1,262)
  Income tax expense                                     --         --         --         --
                                                   ---------  ---------  ---------  ---------

  Income (loss) before discontinued operations       (2,461)    (1,498)    (1,231)    (1,262)
  Discontinued operations:
    Loss from assets transferred under
      contractual arrangements                           --         --     (1,750)      (750)
                                                   ---------  ---------  ---------  ---------

    Net income (loss)                              $ (2,461)  $ (1,498)  $ (2,981)  $ (2,012)
                                                   =========  =========  =========  =========

  Basic and diluted net income (loss) per share:
    Income (loss) from continuing operations       $  (0.52)  $  (0.32)  $  (0.26)  $  (0.26)
    Income (loss) from discontinued operations           --         --      (0.37)     (0.16)
                                                   ---------  ---------  ---------  ---------

    Net income (loss)                              $  (0.52)  $  (0.32)  $  (0.63)  $  (0.42)
                                                   =========  =========  =========  =========

  Weighted average basic and
  diluted shares outstanding                          4,747      4,747      4,747      4,747
</TABLE>


                                      F-25
<PAGE>
<TABLE>
<CAPTION>
                      SAFEGUARD HEALTH ENTERPRISES, INC. AND SUBSIDIARIES
                                          SCHEDULE II
                               VALUATION AND QUALIFYING ACCOUNTS
                         YEARS ENDED DECEMBER 31, 2001, 2000, AND 1999
                                         (IN THOUSANDS)


                                  BALANCE AT   CHARGED TO   CHARGED TO                BALANCE AT
                                   BEGINNING    COSTS AND     OTHER                      END
                                    OF YEAR     EXPENSES     ACCOUNTS     WRITE-OFFS   OF YEAR
                                  -----------  -----------  -----------  ------------  --------
<S>                               <C>          <C>          <C>          <C>           <C>
YEAR ENDED DECEMBER 31, 1999:

Allowance for doubtful accounts:
  Accounts receivable             $     1,942  $       481  $        --  $    (1,369)  $  1,054
  Long-term notes receivable      $     2,020  $     1,819  $        --  $        --   $  3,839

YEAR ENDED DECEMBER 31, 2000:

Allowance for doubtful accounts:
  Accounts receivable             $     1,054  $       300  $        --  $      (486)  $    868
  Long-term notes receivable      $     3,839  $       450  $        --  $    (1,483)  $  2,806

YEAR ENDED DECEMBER 31, 2001:

Allowance for doubtful accounts:
  Accounts receivable             $       868  $       245  $        --  $      (605)  $    508
  Long-term notes receivable      $     2,806  $        --  $        --  $    (2,339)  $    467
</TABLE>


                                      F-26
<PAGE>